John PaulFollow

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Tax avoidance by multinationals has long been a part of the global tax system. Furthermore, the tax avoidance industry always seems to be outpacing the national governments. Elected governments take years to develop tax laws but the accounting and law firms always seem to undermine them within months of a public official’s budget speech. Many accounting and law firms advise governments on tax legislation design and enforcement, which only fuels the suspicion that the tax avoidance industry and national governments are often partners in facilitating international tax avoidance.

The costs of tax avoidance can be high as taxes play a critical role in the development of an equitable society. According to one estimate, the uncollected U.S. tax gap could be in the range of $250 to $300 billion per year, which is the equivalent of a 15 percent surtax on the honest taxpayer. In the U.K., the annual estimated avoided tax amount is $170 billion. Even in wealthy nations, these sums are exorbitant when public funds are scarce and the economies may be in recession. However, tax avoidance adversely affects poor nations the most. The populations in some poor nations with abundant natural resources face grinding poverty even though a more efficient tax collection could raise their standard of living significantly.

Due to rising economic and political pressures, European and U.S. politicians strongly supported the accelerated the “Base Erosion and Profit Shifting” (BEPS) Project, also known as the Global Tax Reset. The BEPS Project aims to prevent base erosion and profit shifting by having taxes paid in the jurisdiction where profits are generated and value is created (i.e., substance).

While the purpose of BEPS may be to reduce the most egregious forms of tax planning, many believe that it may only exacerbate the problems of international tax avoidance. Overall, BEPS may be creating more administrative burdens without addressing the core issues of international tax avoidance.