Author: David Spencer, an attorney in New York City, is a member of the Board of Advisors of the Journal of International Taxation and a frequent contributor.
Recently, the Journal of International Taxation published a three-part article that deals with the allocation of taxing rights between jurisdictions. This is a major international tax issue. The OECD/G20 BEPS (base erosion and profit shifting) project and programs of other international organizations have in effect begun the analysis of the reallocation of taxing rights between jurisdictions.
This article considers whether there will be a more concerted effort by those jurisdictions interested in the reallocation of taxing rights to present comprehensive and detailed proposals, and to press for the implementation of their proposals. Also discussed are the possible common — or conflicting — interests with regard to the reallocation of taxing rights.
Part 1 of this article discusses the OECD BEPS project and the allocation and possible reallocation of taxing rights, through BEPS and otherwise. It addresses the BEPS Actions affecting the allocation of taxing rights, including the tax challenges of the digital economy; neutralizing the effects of hybrid mismatch arrangements; limiting base erosion via interest deductions and other financial payments; and countering harmful tax practices more effectively, taking into account transparency and substance. The article also notes that the allocation of taxing rights does not always require international agreement, and looks at possible fact situations in which allocation of taxing rights could be an issue in the context of income tax treaties.
Part 2 analyzes how international tax issues, such as the allocation (reallocation) of taxing rights, are and will be decided. The major changes in both substantive international tax rules and the decision-making processes will affect how any allocation (reallocation) of taxing rights will be implemented. It considers the OECD’s steps to deal with tax avoidance and evasion, such as by creating Global Forums, focusing on illicit financial flows and capital flight, primarily by individuals, and the BEPS project. The article also looks at the role of international organizations.
Part 3, the final part of this article, continues the Part 2 discussion by describing how the BEPS project has intensified certain conflicts and led to comments about a “tax war.” It considers several factors that have contributed to the conflicts about international tax issues and the difficulty in resolving those conflicts. Part 3 also looks at the EC decision in the Apple case, the future of the inclusive framework, and unilateral actions.
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