Base Erosion and Profit Shifting? It takes one to know one

Last week I was at a research workshop for PhD students at the International Bureau for Fiscal Documentation in Amsterdam. It was very interesting to be in the Netherlands in a rather introspective week about the country’s tax treaties.

The Netherlands is quite sensitive about the accusation that it’s a tax haven, as I found out when the case study of SABMiller I worked on for ActionAid made front page news in the Netherlands. So the OECD’s fingering of the Netherlands in its BEPS report earlier this year has stimulated some interesting debate there, which culminated last week with rival reports published by the Centre for Research into Multinational Corporations (SOMO) and Holland Financial Centre. The combined conclusions are summarised by Dutchnews.nl as follows:

Dutch tax treaties cost developing lands €700m, but earn us €3bn

That’s the Netherlands, but what about the UK? During the IBFD workshop, a Dutch professor, possibly feeling a little patriotic, got rather angry about the BEPS project. Will it really tackle the problem, he asked? He pointed out that it’s being spearheaded by the UK, a country that has just introduced a ‘patent box’ to lure in intellectual property with a ten per cent tax rate. “Talk about base erosion!”

So I thought this little footnote to the Financial Times’ piece on Cadbury’s tax arrangements was interesting:

Dozens of big and medium-sized UK companies are rushing to set up offices in tax havens such as Jersey, Malta, Ireland, the Netherlands, Luxembourg and Switzerland to take advantage of a policy introduced by the British government in April….which creates an “ultra competitive” 5.75 per cent tax rate – a quarter of the full rate – for subsidiaries in tax havens that provide finance for other parts of a multinational group […]

Action Aid, a charity, warns that the rules, which encourage companies to borrow at home and abroad, could cost developing countries up to £4bn of tax revenues. The Treasury rejects the estimate and says it has never acted as “the world’s tax policeman”. But the concern is justified, says a multinational executive. “It is an open invitation to strip everyone else’s tax base”.

I thought it was just campaigners who thought this, but it seems business, too, agrees that the UK is simultaneously positioning itself as leading the charge to tighten up international tax rules, and passing laws that exacerbate (or even exploit?) their weaknesses.