‘Common Law’ Explores Taxing Big Tech, Evolution in International Tax
The world is coming together over a common cause — taxing our digital economy, including big corporations like Apple, Google and Amazon, says Professor Ruth Mason in the latest episode of “Common Law,” a podcast sponsored by the University of Virginia School of Law.
The movement to close tax loopholes affecting corporations offers a chance to update international tax policies that have been in place since the 1920s, she said.
“We’re in a unique moment in international tax right now,” Mason explains on the show. “There’s a lot of potential change — companies are really wondering what’s going to happen, and nobody knows the answer to that.”
An expert in international tax currently serving as professor-in-residence for the International Bureau of Fiscal Documentation, Mason outlined the reasons for the shift. Previously, international oversight had been more lax, she said. That attitude changed with the financial crisis that began in 2007. As European countries were struggling with a major recession, profitable corporations offered an attractive source of revenue, she said.
“Before the crisis, countries’ attitude towards tax avoidance was one of indulgence,” she says. Nations looked the other way while companies shifted profits to low- or no-tax countries.
Companies such as Apple, for example, were able to legally avoid paying billions in taxes through clever tax planning. The extent of Apple’s tax avoidance scheme became clear from hearings and investigations by the U.S. Senate and United Kingdom in 2013.
To close the tax gaps, the countries in the OECD — the Organisation for Economic Co-operation and Development, an intergovernmental organization to which the United States belongs, along with three dozen others — created the BEPS Project to reduce tax avoidance strategies that exploit tax rules. (“BEPS” stands for base erosion and profit sharing, a tactic employed by Apple and others.) More than 125 countries are collaborating to implement the BEPS Project recommendations.
Representatives of the OECD member countries also are meeting this spring in Paris to address the challenges of globalization and digitalization of the economy.
Leading up to the Paris meeting, some countries have proposed taxing these online sources of revenue, with high-earning U.S. companies potentially being affected disproportionately.
But such taxes may be illegal because they violate prohibitions on nationality discrimination in the Treaty on the Functioning of the European Union, Mason argues in a paper she co-authored with Leopoldo Parada, “Digital Battlefront in the Tax Wars,” which was published in Tax Notes International.
“Common Law” is available on Apple Podcasts, Stitcher, YouTube, Spotify and other popular places you can listen to podcasts. You can play it on Amazon Alexa by saying, “Alexa, ask Stitcher to play ‘Common Law’ podcast.”