Source: http://transferpricinghub.com/2014/09/30/rbrts-comments-on-the-oecd-request-for-input-on-beps-action-11/
Timestamp: 2019-04-22 06:32:45+00:00

Document:
We are pleased to respond to the Request for input on BEPS Action #11: Establish methodologies to collect and analyse data on BEPS and the actions to address it taking place from August 4, 2014 to September 19, 2014.
This document may be posted on the OECD website. Full credit goes to Robert Robillard .
1.2. These rules have shown remarkable resilience and, dare we say, great efficiency in eliminating double taxation pertaining to individuals all across the globe.
1.4. The application of articles 7 and 9 of the OECD MTC has proven to be a perpetual source of uncertainty for the corporate sector as more rules and comments are added through time.
1.6. Moreover, in the July 2008 version of the OECD MTC, the Commentary on article 7 concerning the taxation of business profits contained 21 pages of “instructions” for the proper applications of that article, most of which pertains to corporate entities. The July 2014 version now contains 44 pages. Are we nearer to clarity and ease of use? Not from a practitioner point of view, that much is certain.
1.9. Once again, in spite of all these shortcomings related to corporate taxation, these rules have shown remarkable resilience and great efficiency in eliminating double taxation pertaining to individuals all across the globe.
2. Who pays taxes after all?
2.3. In broader terms, shifting of one’s tax burden is in fact recognized all over the world as perfectly legal. Theoretically, it should not matter if that shifting ends up being an added fiscal burden for the society as a whole as allowed by the jurisprudence or, as the case maybe for a given business, in the increases of the prices of its products or the modification of the compensation of its employees.
2.8. This proposal would, in itself, take care of action #11: “Establish methodologies to collect and analyse data on BEPS and the actions to address it” since most of the countries around the world have already implemented comprehensive processes to address tax avoidance on their territory and tax evasion (which is illegal).
2.9. But obviously, repealing corporate taxation usually meets with very strong headwinds in the political sphere since “corporations ought to pay their fair share of taxes”.
2.12. Anyone interested in taxation will recognize this fact.
3.2. No allusion whatsoever is however made to the dreaded “tax havens”.
3.6. Coming back to the BEPS initiative, “tax fairness” is hence suggested.
3.7. We subscribe to that intention without any reservation.
3.8. However, the OECD should not preoccupy itself with that concept as it applies to corporate entities and corporate taxation.
3.9. Taxation theory as seen above is quite clear in regards to the relevance of corporate taxation.
3.10. Simply stated, there is no such thing as “tax fairness” when it comes to the comparison of the taxation of individuals and corporate entities. It is like trying to compare apples to oranges.
3.11. Instead, the examination of the “effective” tax burden and tax rate in comparison to the “statutory” tax burden and tax rate of low income individuals, high income individuals and high-net-worth individuals would be much more promising to ensure “tax fairness”.
3.12. Along the way through that investigation, OECD member countries might discover patches and pockets of “real tax unfairness”; a subject which would need more space that what is available at this time and place.
3.15. In other words, as the BEPS initiative keep suggesting and countries keep implementing more and more technical rules to “regulate” international taxation and the use of tax havens by corporate entities, we may not like the coming end-result much more than the actual situation.
3.16. In fact, the number of double tax cases will likely grow exponentially in the next decade as will tax litigation cases.
 Robert Robillard, CPA, CGA, MBA, M.Sc. Economics, is the Transfer Pricing Chief Economist at RBRT Transfer Pricing (RBRT Inc.); 514-742-8086; robert.robillard “at” rbrt.ca.
 OECD, Model Tax Convention on Income and on Capital, available online http://www.oecd.org/tax/ treaties/oecdmtcavailableproducts.htm.
 OECD, Addressing Base Erosion and Profit Shifting, OECD Publishing, February 2013, p. 35, available online http://dx.doi.org/10.1787/9789264192744-en.
 For greater certainty, the terms “corporate entity” and “corporate taxation” in this document are meant to include any other tax units except for “flesh and blood” individuals.
 In Canada, see among others : Canada v. GlaxoSmithKline Inc., 2012 SCC 52 (CanLII); GlaxoSmithKline Inc. v. Canada, 2010 FCA 201 (CanLII); Canada v. General Electric Capital Canada Inc., 2010 FCA 344 (CanLII); Canada v. General Electric Capital Canada Inc., 2010 FCA. 290 (CanLII); Canada v. General Electric Capital Canada Inc., 2010 FCA 92 (CanLII); Smithkline Beecham Animal Health Inc. v. Canada, 2002 FCA 229 (CanLII); McKesson Canada Corporation v. The Queen, 2013 TCC 404 (CanLII); Alberta Printed Circuits Ltd. v. The Queen, 2011 TCC 232 (CanLII); General Electric Capital Canada Inc. v. The Queen, 2009 TCC 563 (CanLII); General Electric Capital Canada Inc. v. The Queen, 2009 TCC 246 (CanLII); GlaxoSmithKline Inc. v. The Queen, 2008 TCC 324 (CanLII); General Electric Capital Canada Inc. v. The Queen, 2008 TCC 256 (CanLII); HSBC Bank Canada v. The Queen, 2007 TCC 307 (CanLII); Glaxo Smithkline v. The Queen, 2003 TCC 258 (CanLII).
 OECD, Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, July 2010, as modified since then (which include over 75 new pages of “guidance” in the newly released Chapters 5 and 6 on 16 September 2014).
 Again, double taxation cases are obviously private in nature. However, the ever-increasing “closing APA balance” of the Canadian APA program provide us with another glimpse of the state of affairs (Canada, Advance Pricing Arrangement. Program Report, 2013-2014, Canada Revenue Agency, p. 9, available online http://www.cra-arc.gc.ca/tx/nnrsdnts/cmp/p_mp-eng.html).
 See for example : OECD, 2010 Report on the Attribution of Profits to Permanent Establishments, July 2010; OECD, Revised Proposals Concerning the Interpretation and Application of Article 5 (Permanent Establishment), 19 October 2012 to 31 January 2013; OECD, “Taxation Aspects of Electronic Commerce: Publication of reports and technical papers”, available online http://www.oecd.org/tax/treaties/ecommercereports andtechnicalpapers.htm; and OECD, Addressing the Tax Challenges of the Digital Economy, OECD Publishing,16 September 2014, available online http://dx.doi.org/10.1787/9789264218789-en.
 Stephen Ross 1988, “Comment on the Modigliani-Miller Propositions”, Journal of Economic Perspective, Vol. 2, No. 1, pp. 127-33; p. 132.
 Edwin R.A. Seligman 1921, The Shifting and Incidence of Taxation, Columbia University Press, New York, p. 1, available online https://archive.org/details/shiftingandincid00seli.
 Historically, it is notable that Mr. Seligman was a member of the group of economists appointed by the League of Nations to study the key principles of taxation of cross border activities (See Report on Double Taxation submitted to the Financial Committee by Professors Bruins, Einaudi, Seligman, and Sir Josiah Stamp, League of Nations Document No. E.F.S.73.F.19. 1923, available online http://adc.library.usyd.edu.au/ view?docId=law/xml-main-texts/brulegi.xml;chunk.id=item-1;toc.depth=1;toc.id=item-1;database=;collection=; brand=default).
 Richard A. Musgrave 1959, The Theory of Public Finance, McGraw-Hill, New York, p. 230.
 In Canada, it was stated a long time ago: “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.” (Inland Revenue Commissioners v. Duke of Westminster , AC 1,  All ER Rep 259, 51 TLR 467, 19 TC 490, p. 14; available online www.commonlaw.uottawa.ca).
 Interestingly enough, the previously mentioned panel of 1923 limited itself to the observation that individuals may shift their tax burden from country to country by “dissolving existing intermediate entities so that the foreign shareholder becomes a direct holder, it is possible for the individual to shift according to his own interest from one class of assets to the other and to regulate under which scheme of taxes he will fall.” (Report on Double Taxation submitted to the Financial Committee by Professors Bruins, Einaudi, Seligman, and Sir Josiah Stamp, League of Nations Document No. E.F.S.73.F.19. 1923, p. 49, available online http://adc.library.usyd.edu.au/view?docId=law/xml-main-texts/brulegi.xml;chunk.id=item-1;toc.depth=1; toc.id=item-1;database=;collection=; brand=default).
 Thomas A. Gresik, 2001, “The Taxing Task of Taxing Transnationals”, Journal of Economic Literature, Vol. 39, No. 3, pp. 800-38; p. 801.
 Richard A. Musgrave and Peggy B. Musgrave, 1973/1984, Public Finance in Theory and Practice, McGraw-Hill, New York, pp. 386-87.
 To be clear, we suggest that corporate entities should be transparent for taxation purposes. The tax burden would ultimately fall on the individual shareholders of any corporate group or structure, that is the “flesh and blood” individuals, a highly desirable result to start with for tax efficiency purposes.
 Richard A. Musgrave and Peggy B. Musgrave, 1973/1984, Public Finance in Theory and Practice, McGraw-Hill, New York, p. 387.
 Canada, Report of the Royal Commission on Taxation, [Carter Commission] 6 volumes, Vol. 4, Ch. 19, Ottawa, 1966, p. 3, available online http://epe.lac-bac.gc.ca/100/200/301/pco-bcp/commissions-ef/carter1966-eng/carter1966-eng.htm.
 The Canadian Chamber of Commerce, “Embracing a Growth-Oriented Tax System”, Policy Brief, Economic Policy Series, April 2010, p. 5. Note 14 above pertains to Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini, 2009, “The Direct Incidence of Corporate Income Tax on Wages”, Working Paper No. 0707, Oxford University Centre for Business Taxation, April 3. As for the American Enterprise Institute for Public Policy Research, see: Kevin A. Hassett and Mathur Aparna, 2006, “Taxes and Wages”, AEI Working Paper, No. 128, American Enterprise Institute for Public Policy Research, June, Washington.
 OECD, Addressing Base Erosion and Profit Shifting, OECD Publishing, February 2013, p. 1, available online http://dx.doi.org/10.1787/9789264192744-en.
 OECD, Action Plan on Base Erosion and Profit Shifting, OECD Publishing, July 2013, available online http://dx.doi.org/10.1787/9789264202719-en.
 OECD, Addressing Base Erosion and Profit Shifting, OECD Publishing, February 2013, available online http://dx.doi.org/10.1787/9789264192744-en.

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