New OECD tax agreement improves transparency — but the US doesn’t sign and the US press won’t tell you UPDATED
Last week 31 countries signed a new Organization for Economic Cooperation and Development (OECD) agreement providing for country-by-country corporate information reporting and the automatic exchange of tax info between countries under the Multilateral Competent Authority Agreement (MCAA).
Country-by-country reporting, the brainchild of noted tax reformer Richard Murphy,* is a principle that makes it possible to detect tax avoidance by requiring companies to list their activities in each country (nature of business, number of employees, assets, sales, profit, etc.) and how much tax they pay in each country. A company with few employees yet large profits is probably using abusive transfer pricing to make the profits show up in that country rather than another one, to give one obvious example of how the idea works. In the OECD agreement, the procedure is that beginning in 2016 each company will file a report to every country where it does business, then all the countries receiving such reports will automatically exchange them with each other, meaning each of these countries will then have a full view of how much business Google, for example, does in every jurisdiction. The shortcoming to this is that while governments will have this data, the public will not have it (a fact criticized by the Tax Justice Network) due to alleged concerns about confidentiality. However, the European Commission, including its Luxembourgian president Jean-Claude Juncker, is now talking about requiring publication of the country-by-country data for each EU Member State.
Which highlights an important aspect of this agreement: Many major tax havens, including Luxembourg, Ireland, Liechtenstein, Switzerland, the United Kingdom, the Netherlands, Belgium, and Austria have all signed on. But the United States did not sign it. Surprisingly, you can’t find this out in any U.S. publication, as far as I can tell. I’m a subscriber to the New York Times, and a search for “OECD tax deal” or “OECD tax” for the past week (it was signed six days ago) yields no results. “OECD” yields one result unrelated to the MCAA. Ditto for the Wall Street Journal. Ditto for my premium Nexis subscription: No U.S. stories on the agreement. You’d almost think they’re trying to keep us from finding out. But no, not exactly: The Financial Times was able to get Treasury Secretary Jack Lew himself to comment in its story on the MCAA. He said, “From a US perspective, there are elements of this that don’t require legislation and we’re looking to getting to work right away.”
That’s certainly a clue: Some of the changes do require legislation, and getting that from the Republican Congress is not going to happen. In fact, Republicans have always been willing to step up to keep the United States a tax haven for foreigners, and the Bush Administration went out of its way to undermine previous OECD attacks on tax havens offshore, as Australian political scientist Jason Sharman masterfully showed in his book Havens in a Storm.
Republicans have done such a good job at helping out domestic tax havens that the United States is now “The World’s Favorite New Tax Haven,” according to Bloomberg Businessweek which, in an ironic coincidence, published the story at 12:01AM the day the MCAA was signed (so it didn’t report on the signing either). According to the article, foreigners’ money is pouring out of Swiss banks into the United States, and Rothschild has set up shop in Reno, Nevada.
A little too ironic…
* As regular readers know, Murphy is someone I frequently cite in these pages.
UPDATE: @AlexParkerDC from Bloomberg BNA was kind enough to send me to a couple of his posts on the OECD’s Base Erosion and Profit Shifting (BEPS) negotiations. These suggest that the Obama Administration believes it can implement country-by-country reporting through regulation alone, and had already committed to it in the BEPS process. However, the IRS has proposed not to implement country-by-country until 2017, while the new OECD agreement begins with this year’s tax information, as noted above.
Cross-posted from Middle Class Political Economist.
With the highest corporate tax rates in the world, how the heck are WE and tax haven for ANYONE?
Did you see what 60 Minutes did on this corporate tax haven, money laundering issue this past Sunday?
The 60 Minutes report starts here: http://www.cbsnews.com/videos/anonymous-inc-part-i
In order to be taxed on something, you have to acknowledge that you have it.
The 60 Minutes piece is clearly talking about money laundering, which is not necessarily tax evasion. But it did show how easy it is to hid money in the US, money from any source.
“With the highest corporate tax rates in the world, how the heck are WE and tax haven for ANYONE?”
Warren step up the trolling quality, even you know the basic three answers to this question: tax credits, deductions/exclusion, tax shelters.
Anyone who doesn’t use comparative EFFECTIVE rates is just lying to himself or others and won’t be taken seriously at an EconoBlog. Even a Right Econoblog, they don’t need to be embarrased by literally sophomoric level explanations. There is a world beyond the first chapter of Mankiw’s Principles textbooks. And trotting out his maxims as if they were holy writ or on the other hand economic science just marks you are more gull than shill.
Marginal rates set a baseline against which to work. And by no means are every adjustment against that baseline illegitimate, there are good reasons to give tax incentives for behavior that promotes the general welfare. This for example is that stated reason for the home mortgage interest deduction that reduces many to most middle class people’s effective rate. Whether that behavior actually promotes the general welfare is another question, but the first order argument for tax incentives is not to be dismissed out of hand.
For example many people argue that the 90+% marginal income tax rates in the 50s were ineffective becausse few actually paid at that rate. But that assumes that the choices made to avoid that marginal rate were not themselves beneficial to the country. And of course some were not. And many were. For example I have argued that high marginal tax rates actually incentivize re-investment where classical theory would suggest the opposite. And give the 50’s as an example.
And of course all this could be pushed back on. But Christ’s sake man you are not going to get traction with an argument that starts and stops with: “Duh, high marginal rates! What don’t you get?”
Warren, you are right that a corporation would not openly shift profits to the U.S. due to the high corporate tax rate. But as Sandi said, you can hide money anonymously in the United States, so that would be open to a corporation. In general, though, that is more useful for individuals who want to engage in evading taxes from their home country.
A terrific, tremendously informative piece, Kenneth. So glad you’re a Bear.
Beverly, thanks, I’m glad you liked it.
The 60 Minute piece was not just about money laundering, it was also equally about how easy it is to form a corporation. Easiest in the world next to I believe Kenya.
Forming corporations is kind of primary to hiding money including legit money.
“This for example is that stated reason for the home mortgage interest deduction that reduces many to most middle class people’s effective rate.”
But we all know that that stated reason is a bald-face LIE.
Ask ANY real estate agent what would happen if that deduction were to go away. They will all give you the same answer — prices will fall.
So who benefits? Banks (higher mortgages), real-estate agents (higher commissions), localities (higher property taxes), and those who owned their houses before the tax deduction went into effect (higher prices for their houses).
Those who bought after the deduction went into effect? Bubkis.
“[You] can hide money anonymously in the United States, so that would be open to a corporation.”
I don’t understand. WHAT would be open to a corporation?
Here’s a twist on the inversion scheme I haven’t read about before:
So, Uncle George moves to Ireland but he ‘loans me’ several million bucks, on which I pay interest, but then can use to lower ‘my’ tax bill. I don’t have an Uncle George, of course, so I can’t use this dodge…….