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Lineamenti generali del c.d. “progetto BEPS” e l´impatto della digital economy nel sistema tributario

Giovanni Consolo, PhD in Tax Law, Università degli Studi di Milano-Bicocca – Adjunct Professor in Tax Law, Bocconi University.

Il presente contributo è la trascrizione dell’intervento tenuto al seminario “Market Competition and Tax Cooperation: Two Sides of a Coin? Lectures Compared”, con riguardo ai lineamenti generali del c.d. “Progetto BEPS” e all’impatto nel sistema tributario della digital economy.

PAROLE CHIAVE: progetto BEPS - BEPS - economia digitale - digital economy

General overview of the BEPS project and of the challenges arising from the digitalization of the economy *

Il presente contributo è la trascrizione dell’intervento tenuto al seminario “Market Competition and Tax Cooperation: Two Sides of a Coin? Lectures Compared”, con riguardo ai lineamenti generali del c.d. “Progetto BEPS” e all’impatto nel sistema tributario della digital economy.

1. Introduction

I was requested to give you a general overview of the BEPS Project and of the tax challenges arising from the digitalization of the economy.

These are very technical and complex topics, on which you can find hundreds of articles and books [1].

Therefore, I won’t even dare to address the BEPS Project and the basics of digital taxation in a technical way, rather the aim of my presentation is to tickle your curiosity with respect to these issues.

Precisely, I would be happy if at the end of this brief presentation we will be able to answer the following questions: 1) what does the term BEPS mean (or to use a funny expression that I have recently read: “What the BEPS” have we being talking about this morning [2]?); 2) what is the BEPS Project and what is the impact of this project in the current tax legislation; 3) why the digitalization of the economy has become a challenge for taxation that needed to be addressed in the BEPS Project? [3]

 

2. What does the term BEPS mean?

As you know, since at least the beginning of the last century, countries have long worked to eliminate international double taxation, while affirming their sovereign right to establish their own tax rules.

International co-operation has resulted in shared principles and a network of thousands of bilateral tax treaties that are based on common standards

In the last two decades, however, the way of doing business has substantially changed: today capitals and workers are moving freely all around the globe, many companies are shifting their manufacturing bases from high-cost to low-cost locations, and trade barriers are gradually disappearing.

As a result of this quite recent integration of national economies and markets, a large portion of the global gross domestic product is now generated by large multi-national enterprises that are able to spread their productive activities all around the world and to locate such activities in geographic locations that are very far from the physical location of their customers [4].

From a tax point of view, the globalization of the economy has made it much easier for enterprises that undertake cross-border activities to take aggressive tax positions, by exploiting the gaps and the mismatches in the existing tax rules and, therefore, achieve a low level of taxation, or even avoid taxation in toto.

This, as you can imagine, undermines the fairness and integrity of tax systems.

Indeed, on the one hand, businesses that operate across borders can use aggressive tax strategies to gain a competitive advantage over enterprises that operate at a domestic level.

On the other hand, such aggressive strategies reduce countries tax revenues and, as a consequence, the ability of countries to pay for essential public services such as schools, transports and – as the recent Covid crisis made it clear– hospitals and health treatments.

Just to give you some figures, according to the OECD tax avoidance by multinational companies costs something between 100 – 240 billion US dollars per year, which is roughly equivalent to a percentage between the 4 and the 10 per cent of global corporate income revenues.

Of course, aggressive tax strategies by large, multinational enterprises are not only caused by the globalization of the economy, since also other factors come into play, such as, for example, the fact that countries, from a tax perspective, usually view themselves as competitors and, therefore, resort to aggressive tax policies in order to attract investments and revenues in their territories [5].

So what does the term BEPS mean?

The term BEPS stands for Base Erosion And Profit Shifting and in general refers to tax planning strategies of multinational enterprises that exploit gaps and mismatches in tax rules in order to artificially benefit from minimal taxation and obtain the so-called “stateless” income or double non taxation [6].

 

3. The BEPS Project

At the starting of the last decade, when the economic crisis hit hard and also the richest economies found theirselves with the need for higher tax revenues in order to finance the increasing need for public expenditure, Base erosion and profits shifting adopted by mega multinational enterprises, generated a lot of media exposure and political attention.

The G20, in particular, demanded action and charged the OECD to find some ..


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