BEPS Should Not Be Excuse for Hidden Tax Increase, Says ITIF

WASHINGTON—Joe Kennedy, senior fellow at the Information Technology and Innovation Foundation (ITIF), released the following statement on the Organization for Economic Cooperation and Development’s final report on its Base Erosion and Profit Shifting (BEPS) project:

The BEPS project covers an extremely wide range of topics and initiatives, and each of these needs to be examined in detail. Overall though, the goal should be to eliminate some of the tremendous complexity associated with international taxation and to ensure that all profits are taxed once and only once.

The BEPS project should not be an excuse for hidden tax increases however, nor should it dramatically increase the cost of compliance. We are concerned that criticisms of transfer pricing may provide an excuse to shift tax receipts from the United States to other countries by levying taxes according to criteria other than where profits are actually earned.

The BEPS recommendations now go to the individual countries for implementation. In reviewing these recommendations, Congress and the administration should be guided by three principles. First, we should maintain the arm’s-length transaction as the guiding principle for allocating profits among jurisdictions. Although this principle can be difficult to apply in practice, it represents the truest measure of where profits are actually earned. Second, national governments should be allowed to compete on the basis of tax laws, including the simplicity of their systems and the level of their rates. Efforts to rein in tax competition must be limited to cases where profits escape any taxation and other abuses, including tax havens. Lastly, the final result of changes in national laws and bilateral tax treaties should be to eliminate obvious abuses and to give companies more clarity in how tax law will be applied.