International Tax: Base Erosion and Profit Shifting

This article discusses the Base Erosion and Profit Shifting strategy to tackle international tax issues. It also covers the ethical obligations of taxpayers and the definition of fair share taxation. The article highlights the action plans proposed by the BEPS to help solve issues related to the international tax and the Tax avoidance.

INTERNATIONAL TAX
Student’s Name
Institution

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INTERNATIONAL TAX
Introduction
The base erosion and profit shifting is the new strategy which bridges the gaps and
mismatches in all the tax rules related to ATAD (Anti-Tax Avoidance Directive). In the new
framework, over a thousand countries are in collaboration to implement the strategy and tackle
all the BEPS issues. The Organization for Economic Cooperation and Development together the
base erosion and profit shifting initiative is seeking to advise the international companies on the
issues related to taxes. There are about fifteen action plans that have been put in place by the
OECD to address the issue of the international taxations. The question of international taxation is
a big issue in the regional and the global markets.. Some of the organizations that were put in
place to tackle the issues related to the international market and taxation include the G8 and G
20.The following represents the action plans proposed by the BEPS to help solve issues related
to the international tax and the Tax avoidance.
The context and reasons behind the current focus on the Base Erosion and Profit
Shifting.
The trend in the taxation is currently taking different dimensions, and it has been evident
that various governments are seeking to have the additional revenue that streams. Different
boards and financial committees should be informed about the existing and the new changes in
the tax policy and developments. One of the critical approach in monitoring this challenge is the
formation of the G 20 member states which help in policy formulations on matters of
international taxations. The project is also intended to motivate the individual governments to
change their tax laws and other treaties in order to reduce all the opportunities to shift profit s

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which lowers the taxed jurisdiction.1 Based on the action plan discussed in July, the BEPS
initiative discussed some of the following issues.
Addressing the digital economy and related challenges
The digital economy is on a rising mode. With the increase in the online marketing and
jobs, the organization is trying to come up with the policies that govern issues surrounding the
digital economy. All the business and related activities should be digitalized to allow for easy
collection of the tax. By digitalization, there would be proper keeping of the records. The
international and regional policy makers would be able to monitor the flow of taxation and other
marketing issues.
The establishment of the international coherence of the cooperate taxation
Tax policy is considered as the critical issue in all the sovereign nations, and each
country has rights in developing tax system in the manner considered most appropriate to each of
the countries. In addition to these, the increase in the interconnections of the domestic economies
has identified all the gaps which have been created through the interactions between the domestic
laws that govern the taxation.2 Therefore there is need to complement the rules to avoid the
double taxation; that has the new sets of the standards which are designed to establish all the
international coherence in all corporate income taxations. The organizations proposed for new
systems which will strengthen the coherence among the cooperate organizations.
1 Arel-Bundock, Vincent. "The Unintended Consequences of Bilateralism: Treaty Shopping and
International Tax Policy." International Organization 71, no. 2 (2017): 349-371.
2 Graetz, Michael J. "Bringing International Tax Policy into the 21st Century." (2016).

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Neutralize the effects of mismatch of the hybrid arrangements
The neutralization of all these effects and process will help the individual countries to
come up with the right agenda and programs of solving the tax challenges related to the
international taxation. The issues related to the international taxation and markets are sometimes
decided by the group or organizations that come together from the world most powerful nations
referred to us the G8 and G20 nations. Most of the world's nations that form part of these groups
are perceived to be the market leaders; they also decide on the international pricing and
marketing.
Some of the impacts of the neutralization of the mismatch of this hybrid arrangement
include the changes of the OECD in the tax model concentration which ensures that the hybrid
entities form part of the instruments and that entities are not used in obtaining the unduly
benefits. The provision of the documents law which protect the exception or the non-recognition
in payments which are regarded as deductible from the payer.3 The provision of the domestic law
which may deny the deduction for the payment is not inclusive of the income of the client.
The strengthening of the CFC rules
For the enhancement to take place, the BEPs has agreed to come to some issues which
govern the international taxation law.4 The improvement is done by developing the
recommendations which form part of the foreign company controlled rules. Some concerns about
3 DiGabriele, Jim, and Marianne Ojo. "Bank secrecy laws and tax havens: Expanding areas and possible
roles for computer forensic accounting." (2017).
4 Ojo, Marianne. "Bank Secrecy Laws and Tax Havens: Expanding Areas and Possible Roles for Computer
Forensic Accounting? (Presentation Slides)." (2017).

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the BEPs have raised the excessive deductions of the payments such as the interest and all forms
of financial payments. Withholding of payments and interest may rise and form part of the
double and out double taxation payments. For example, in the inbound, the interest expense
deduction forms part of the leading entity which benefits the law tax ruling for the excessive
interest to be created.5 Any form of the consumer protection on the international tax rules is also
looked into by the CFC and other organizations that offer protection to an individual citizen from
each of the nations. Individual nations have been given power to ensure that the rules of taxation
are well adhered to and no violation is done which may negatively influence the international
market.6 Also the international tax policies limit base erosion through interest deductions and
other financial payments
.
Ethical obligations of co-operating taxpayers in paying the fair share tax
The corporate taxpayers have some ethical obligations and rights during the payment and
after the payment of the tax. Before payment is made, the corporate should be aware on how the
tax calculation is arrived at. The right to information helps cooperate tax payers in determine the
minimum amount of money to be remitted to the Tax Authorities. Through the access to
information, the corporate tax payers are able to do the inquiries concerning the fare share. The
5 Christians, Allison, and Stephen E. Shay. "Assessing BEPS: Origins, Standards, and Responses." (2017).
6 Cooper, Graeme S. "Implementing BEPS, or Maybe Not-The Australian Experience One Year On."
(2016).

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right to information also help the tax payer to have his legal advisor be present during an
investigation concerning the payment or any emergency that may arise during the payment.
Since in fare share one is required to make payment of the percentage you receive from the
government, cooperate tax payer is able to update Hus financial account at any time the payment
is made. The taxpayer has a right to be informed on the time and appropriate changes. The
appropriate amendments on the taxation and also on other regulations that have been brought
about by the tax authorities in connection with the information received.7The taxpayers should be
informed in advance about any changes that may arise from the tax authorities concerning the
tax. Taxpayers should always be aware of the methods of the tax calculations, and changes in the
payments of the tax loss. They should also be made to understand the nature of the data that
related to the status of their tax claims and the existing liabilities. In addition to these, the
taxpayers should also be allowed to check the data in the tax records within the period.
Right to assistance is also one of the ethical obligations that a cooperate taxpayer is
entitled. Incase there is lack of knowledge on some serious issues concerning taxation , the tax
payers should be made aware of such changes.This issues may sometimes cause the taxpayer not
to follow the right procedure in accessing the services from the tax authorities .For this reason
the concern companies must always ensure that proper assistance and guidance should be
provided to the taxpayer to avoid any confusion that may have risen due to the lack of
knowledge or his ignorance on matters of international taxation.
7 Infanti, Anthony C., ed. Controversies in Tax Law: A Matter of Perspective. Ashgate Publishing, Ltd.,
2015.

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The right to impartiality and fair treatment is key to any taxpayer in a given nation.
Taxpayers must always be treated equally irrespective of ethical or tribal background; this will
ensure there is confidence in them more so in dealing with matters of taxation. Furthermore,
there should be confident of the data that is submitted to the tax authorities and also to other
connections with the tax authorities.8 The taxpayers are also entitled to the legal remedies as they
may sometimes disagree with the decisions brought about by the tax authorities such as the
subscription of the tax return after the expiry of the date. Finally, the taxpayers have also a right
to any refund on the overpayment of the tax, and also he or she should be informed on the
peculiar ways of the tax payments and their liabilities concerning the payments.9
With the greater care, the tax payers should always ensure that their rights are protected.
Constant training and support should be offered to them by the concern Authorities With the
constant training and seminars, taxation Authorities should always try to be close to their clients
for effective communication and quality service delivery. The clients should ensure that they are
made aware of their rights.
The tax payers are sometimes over charged in terms of the money remitted on the file tax
return. The clients are sometimes not aware on the policies to be used in the tax return. Proper
training and seminars should be encouraged between the clients and the Authorities in solving
the challenges incurred within the system.
8 Goodhart, David. "A postliberal future." Demos Quarterly 1 (2014): 2013-14.
9 Rintamäki, Susanna. "Stakeholder expectations of CSR–Case Olvi Group." (2018).

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The tax payers have the obligation of making the payment in time. He must ensure that
all the duly taxes are paid within the set dates without delay. In case of any challenge or changes
that may take place, they should always make the arrangements with the Tax Authority before
the dates to avoid the penalties. The corporate tax payers should always make mutual
arrangements in case they will not be able to make the payment in time. Sometimes to pay the
tax at the stipulated time may be a challenge to the tax payer, his key role is to inform the
concern Authority to be aware in case there are some difficulties that may be experienced in the
payment of tax. This a very serious issue that always affect the rights of corporate tax payers.
The corporate tax payers should always be honest and cooperative during the process of taxation
and making payments. This obligation is very key to the tax payers. They should be ready to
cooperate with the administration in giving the details of the tax to be paid. All the available
forms must be filled as required. False information should not be provided during the payment of
the tax. All the files and other important documents should be return in time to avoid any
misplacement. The obligation of the cooperate tax payers in the fare share is to act in honesty.
They should always treat the Tax Authorities with courtesy and respect at all time of the service
delivery. Keeping of records is an essential in payment of tax; it makes the tax payer to have an
up to date records if his obligations and trend of payment. By keeping records all cooperate tax
payers will be able to enjoy their rights.
Finally the obligations of a tax payer goes hand in hand with the rights that they enjoy
during the fare share payment of the taxes.
Definition of fair share taxation and the problems associated with its legislation

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The fair share taxation is defined as the payment by individuals on the amount which is
proportional to the amount they receive from the government. The fair share tax system is the
taxation where the individuals are expected to make the payment of tax depending on the amount
of money he or she earns from the government. The individual taxpayers are meant to make
payments depending on what they were intended to pay.10 This kind of payment system
sometime faces some challenges in its legislation. The problems are sometimes based in the
financial status of the taxpayers, for example, it is very difficult to note the gap in tax that should
be paid by the higher earners as compared to the lower earner within a given setup or nation.
There is always the perception that the rich individuals who work very hard should be left to
enjoy their hard work instead of paying a lot of taxes to the tax authorities. Sometimes the
presentation of the information to the individual taxpayers become a challenge in implementing
the system of taxation. This is always characterized by the skewed views of the individuals.
Some of companies and government sectors pay a small amount of money which will not be
enough if the payment of the tax is correctly made by the individuals.
From the definition, sometimes the negative publicity surrounding the low tax payments
by the taxpayers is justified. One of the key reasons which bring about the rate of low tax
payment in fair share taxation is the issue of some companies that pay their employees little
amount of money which when paid the individuals will end up having nothing to take home.11
10 Scriven, Tom. Popular Virtue: Continuity and Change in Radical Moral Politics, 1820-70. Oxford
University Press, 2017.
11 Shay, Stephen E. "Directions for International Tax Reform, Testimony before the US Senate Committee
on Finance Hearing on International Tax Reform." (2017).

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Sometimes the rich individuals think that by paying the tax they are also paying it on behalf of
the low-income earners for which should not be the case. To solve the problem of fair share the
given companies and state cooperation should device proper ways of proper payments at the
same time come up with a standard scale of tax payment.
Non uniformity in the salary among the individual citizens is another challenge in the
implementation of fare share taxation. Since the individuals should pay the portion of what they
earn as tax, some of them find it difficult to do this because of what they earn. Some of the
higher earners do not believe in this system. Some of them do believe that after a hard work, they
should be left to enjoy their wealth peacefully. For this reason, the responsible organizations
such as BEPs should ensure that the proposed action plans are fully implemented. Uniform
taxation scale should always be put in place to ensure no weight is felt to the individual citizens.
The process of taxation in this system is where one is to pay the tax depending on what
he gets from the government. The system gas a number of challenges as the ones explained
above. Because of its nature where one is supposed to pay from what he earns, it is not practical
to the retired citizens without the pension. The government is not able to know the exact number
of those who pays the tax. The total amount of taxation is also not possible to be evaluated
because of the fluctuation in the employment offered by the government. Statistical data on the
number of employed citizen is the only way of solving this kind of problem.
The method of taxation is also not possible for the small scale farmers and business
communities. The method of taxation needs the" at most good faith “from the individual citizens.
Some of the small business men would not see the need of paying the taxes because of its nature
of payment. Sometimes the problem of the economics of scale from these firms do not allow
them to remit the taxes within the given time.

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The negative publicity around the low tax is justified. This is because of the payment of
tax that is done due to the payment from one earns.
Justification of the negative publicity surrounding the low tax payment by the
corporate tax payers
Many policy makers believe that the tax paid by the citizens sometimes become too high
than the normal rate. The payment of high taxes is considered to be the cause of deteriorating to
the economy of the country. A lot of money will be used in paying the taxes and expenses
instead of funding of development projects. In addition to this, payment or remitting of tax is a
challenge to the low income earners of a given country. This become a challenge when there is
rising on the amount of tax to be paid than what they earn per month. Lack of proper knowledge
on the policies of taxation become another reason for the low payment or remitting of tax by
cooperate tax payers. These may include the policies behind the taxation system.
Roles that will be played by the recommendations in the BEPs final report in
combatting the BEPs
The Organization for the Economic and Development (OECD) came up with key pillars
and recommendations as in the 5th October 2015 report. The report released stated the key
pillars of the actions on the taxation policies and the treaties to be followed as part of the BEPs
proposals. One of the primary recommendations was:
Addressing the tax challenges of the digital economy
The rapid change in technology in the economic issues is on the key issues that were
counter checked. There was a rapid need for the changes in the digital economy. One of the
greater roles of this recommendation is to change the tax systems from the analog to the digital
way. This will enable the efficient tax collection and also in solving the level the relationship that

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exists between the domestic and foreign taxes.12 By migrating to the digital economy, the ethical
obligation to customers on the access of information will be respected since the information will
be available in the online at all time
Country by country reporting
Another key recommendation was the country by country reporting.
The liberations among the member states suggested that through reporting there would be
proper balancing regarding the financial balancing. The data of the individual countries will also
be available for analysis at a given time. The additional information in data will also be useful in
the fair share taxation system.
One of the significant challenges that may be experienced during the
implementation of the recommendations includes the mistrust among the member states and the
financial difficulties that may arise. If the full implementation of the recommendations is done,
there will be the elimination of BEPs because each nation will be governed by the already
existing laws and treaties and if there a violation of the law occurs the individual violators will
be able to face the international law on taxations
Some of the current concern issues include the prevention of the international taxing
treaty ,the prevention of artificial avoidance to the PE status, the assurance of the pricing transfer
actions which is in line with the value addition and creation. Some of them include intangibles,
capital and risk engagement and other high-risk engagements. In addition to these, there is need
for establishing different methodologies to collect and help in the analysis of data. The
12 Liebman, Howard M., Werner Heyvaert, and Valérie Oyen. "Countering harmful tax practices: BEPS
action 5 and EU initiatives–Past progress, current status and prospects." European Taxation (2016).

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transparency is also required in tax planning/transaction. Taxpayers have required disclosure of
their tax planning arrangements within the international market. Other issues which may also be
addressed include reexamining of the transfer pricing documents and also to make the dispute
resolutions about mechanisms in a more effective way. Finally, BEPs plan is to develop a
multilateral instrument which will be used in governing the issues of pricing transfer and the
international tax.
These action plans further help in analyzing the tax that is being practiced by some
nations. The BEPs is a concerned with harmful practices with the priority of improving the
transparency and any emergency that is caused by the exchange of rulings related to preferential
organizations. The action being planned is to come up with holistic approach in evaluating the
preferential taxation which requires the BEPS context. The engagement will be done by non-
OECD members on a given framework which considers revision and additions to the existing
framework. By proper implementation of the concern issue, there will be restoration of full
effects which has more enormous benefits to the international standards.
All the above issues are always addressed by different conferences organized by the
world leadership on economic matters such as the G8 and G20. The G8, G20 and the
Organization for the economic cooperation and developments (OECD) much in agreement in
undertaking all the GI end actions to solve any problem that may have arisen. Different nations
have been requested to implement the fifteen action that has been proposed by the Based erosion
and Shift profiting (BEPS) to implement the issues for the property of the international market
and the taxation abuse.
Challenges to the implementation of the BEPs action plans

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There are a number of challenges that faces the implementation of the BEPs actions
plans. The European ministers have been under the pressure from both the EU Parliament and
public pressure. Some of the action plans may take time to implement. But due to ever ending
pressure from the given stake holders it may not be easy for the implementation. The
implementation is through the ATAD (Anti -Tax Avoidance Directives).Sometimes the
implementation of the action plans through a fast track may become a problem .The
implementation of the Anti-Tax Avoidance Directive (ATAD) was discussed months after the
European Committee after the proposal. One major challenge to this implementation is the
political momentum and pressure from the public.
Different tax system from the individual nations is another challenge that faces the
implementation of the action plans. Lack of uniform systems in the implementation contributes a
lot to the setback of the BEPs plans. The payment patterns, penalties of the implementers, the
duration of paying tax are some of the tax systems used by different nations. The international
organizations on ATAD should come with uniform systems to curb these challenges.
In case of the full implementation of the proposed action plans, the member states will be
able to stand on their own. The main objective of the BEPs is to come up with the standard
policies on ATAD. The 15 action plans are clear foundation to the stability in terms of the tax
plans. With the full implementation, the default in tax payment will end .This will boost both the
international and national economic growth.

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.