fiscal/tax competition: state issues ken klassen
TRANSCRIPT
Overview
• Outline:1. Overview of trends multijurisdictional
commerce and implication for tax planning
2. Encouraging economic growth
3. Some thoughts on directions for research
1. Importance of the Topic
• Much discussion of international tax systems’ effects of global businesses, country economies, tax revenues.
• “Governments risk ‘global tax chaos’ as they chase dwindling revenues from multinational companies unless the international tax regime is radically overhauled” —G20 Report
The 1998 Ottawa Taxation Framework Conditions
• Main principles– Neutrality: between form and across method– Efficiency: cost of compliance– Certainty and Simplicity: when, where, how– Effectiveness and Fairness: right amount and
timing with minimal avoidance opportunities– Flexibility: the world will change
Trends
• Connectivity, and the diversity thereof, is increasing rapidly
• Devices are sold at a loss to achieve services
• Cloud computing• Eventually to “The Internet of Things”• Robotics and 3-D printing
Tax Issues Raised by Changing Mode of Commerce• Strategic income location
– well, BEPS
• Can shift burden of taxation to single-state business or across forms of business
• Creates non-neutralities of location or form• Always existed, but trends have made the
revenue effect larger and it is likely to grow
The 1998 Ottawa Taxation Framework Conditions
• Main principles– Neutrality: between form and across method– Efficiency: cost of compliance– Certainty and Simplicity: when, where, how– Effectiveness and Fairness: right amount and
timing with minimal avoidance opportunities– Flexibility: the world will change
2. Encouraging Economic Growth
• Beyond neutrality• Who creates economic growth?• Deloitte 2012: Growing businesses• Van Praag and Versloot (2007)
– Meta analysis of 57 ‘high quality’ studies– Small and young firms employment growth
and maybe productivity growth– <10% use self-employment as def’n
Encouraging Growth
• Wong et al. (2005) and Stam et al (2011)– The effect of entrepreneurs on growth is not
universal across entrepreneurs– Only “ambitious” entrepreneurs relate to
economic growth– Other entrepreneurs and other high-growth
firms have no incremental effect• The results for high-growth firms may be because
their growth results from M&A
3. Three Conceptual Possibilities
• Collect tax in customer’s jurisdiction through self-assessment– Rarely does anyone self assess
• …in the seller’s jurisdiction– Wrong tax rate and wrong government
• …in the customer’s jurisdiction by seller– Requires non-Nexus entities to register
creating complexity and limiting supply
Options considered at the OECD
• Create a ‘digital presence’ standard analogous to physical presence
• Some form of ‘virtual permanent establishment’
• Require remote suppliers to register locally– Require federal mediation or state collective
Other Options
• Introduce a VAT rather than sales tax• Suffers from some of the same issues• Possibly easier to achieve multi-state
collection agreements• Other advantages as well
– Much less concern about cascading