47–49 Pearse Street, Dublin 2, IRELAND
OECD Centre for Tax Policy and Administration - BEPS Project
2, rue André Pascal
75775 Paris Cedex 16
France

By eMail to taxtreaties@oecd.org

18 September 2014

Dear Sirs

Comments on reqest for input on Action 11 (Establish methodologies to collect and analyse data on BEPS and the actions to address it) of the BEPS Action Plan

We refer to the above titled document.

We note the wide scope of the work in this area. We wish to comment specifically on a number of the questions raised in the Request for Input.

A. Indicators of the scale and economic impact of BEPS

You ask for indicators which could be tracked to show trends over time for an individual country or globally.

The difficulty with any such indicators is to filter out factors which alter the trends, but which are not related to BEPS project initiatives. These could include:

• Changes to the Tax Rate in an individual country
• GDP growth or shrinkage – there is some evidence in our country1 that over time there is an average elasticity in the proportion of 1:1.1 between overall tax revenues and GDP
• Non BEPS project changes to the tax regime in an individual country – this might include new Double Taxation Agreements being concluded, or new incentives such as additional relief for Research and Development. Such developments could mask the consequence of measures within the BEPS project.

A frequently used existing measurement in international comparisons is the ratio of Corporation Tax receipts to GDP for a country2. This measurement has the merit of using GDP whose measurement is governed by international standards. The use of existing recognised standards would contribute significantly to the acceptance of measured comparisons. Any comparisons for BEPS purposes would have to be adjusted for the factors mentioned above (except for the GDP to tax elasticity ratio).

Any measurements would have to be interpreted in the context of FAQ63 published along with the BEPS deliverables on 16 September 2014 – “The BEPS project is not about increasing corporate taxes… Non- or low-taxation is not itself the concern, but it becomes so when it is achieved through practices that artificially separate taxable income from the activities that generate it.”

B. Economic analysis of the scale and impact of BEPS

B.3 Effective Tax Rates

At least some of the impetus for the BEPS project as a whole has been generated by disquiet at the apportionment of tax revenues between countries in which multinational organisations operate. It seems to us that some of that disquiet has stemmed from a lack of agreement as to the best method of computing the apportionment of taxes between territories. At the root of this lack of agreement are disputes over effective tax rates. Observations and arguments have been generated on the basis of not like for like comparisons.

On the face of it, the computation of the effective tax rate for a company should be a matter of dividing the company profit by the amount of tax paid for the same period. There is legitimate discussion as to which amounts should constitute the numerator and the denominator in this formula.

The analysis may also be carried out either at the macroeconomic level, or at the level of the individual companies concerned. Macro studies arrive at effective tax rates from aggregate macroeconomic data. Micro approaches either use actual financial statements of the companies concerned, or extrapolations of hypothetical models.

A recent paper published by the Department of Finance in Ireland3 examined instances of each of these three different approaches to the computation of effective rates of tax using model companies, official national statistics; and financial reports. The paper concluded that an approach based on national aggregate statistics is the most suitable. Within that approach, it advanced the thesis that measurements based on Net Operating Surplus and Taxable Income best represent the effective Corporation Tax rate in Ireland.

It does not of course follow that these findings necessarily constitute the best approach to effective tax rate measurement in every country. However the approach does ringfence apparent distortions in the effective rate computation which arise because of foreign activity by individual companies. It seems to us that such a ringfencing would be essential in tracking the effect of BEPS project initiatives on individual countries.

Whatever methodology is used, there has to be consistency by way of international agreement on the method. Ideally that methodology should apply existing sources of data, before establishing additional reporting or information collection requirements to avoid duplication of effort or additional burden to taxpayers.

E. Other Comments

Measures to counter Base Erosion might be relatively straightforward to measure on a global basis. If anti Base Erosion measures are effective, it would be expected that over time and all else being equal, aggregate corporation tax revenues would increase. One difficulty in this measurement might be the level of corporate losses coming forward as a result of the global recession. The tax effect of these losses would have to be absorbed before Base Erosion results become evident. Effective Base Erosion measures would result in the more rapid absorption of such losses, but we can think of no way in which that more rapid absorption could be quantified consistently across territories.

Measures to counter profit shifting by definition involve tax revenue shifting. If a company is in the future precluded from moving taxable profit from Country A to Country B, then the corporation tax revenue in Country B would be expected to decrease.

We conclude that the success or otherwise of BEPS project tax regime changes might well be measured, but only become evident over an extended period of time.

You may wish to note that this response is from a representative body. The Consultative Committee of Accountancy Bodies – Ireland is the representative committee for the main accountancy bodies in Ireland. It comprises Chartered Accountants Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the Chartered Institute of Management Accountants, which represent a combined membership of some 40,000 accountants. Brian Keegan, Director of Taxation at Chartered Accountants Ireland (brian.keegan@charteredaccountants.ie, +353 1 6377 347) may be contacted if any further details in relation to this letter are required.

Yours faithfully

Paul Dillon, Chairman, CCAB-I Tax Committee Source: Chartered Accountants Ireland. www.charteredaccountants.ie

1. Report of the Tax Forecasting Methodology Review Group 2008, Department of Finance, Dublin, April 2008

2. For example Taxation: Key tables from OECD – ISSN 2075-8510 – © OECD 2013 and Taxation Trends in the EU – ISSN 1831-8789 – Luxembourg: Publications Offi ce of the European Union, 2013

3. Technical Paper on Effective Rates of Corporation Tax in Ireland. Department of Finance, Dublin. April 2004