The Suitability of BEPS in Developing Countries (Emphasis on Latin America and the Caribbean)

In developing countries, where competing priorities often overwhelm capacity, the sweeping BEPS initiative can serve to motivate and justify the devotion of limited resources to the international tax field. It is hard to say whether all of the BEPS Actions are “suitable” for developing countries as their size, level of maturity, and many other factors that influence taxation vary drastically. An evaluation of domestic circumstances will help to determine the tax regime’s compatibility with the BEPS recommendations. This initiative represents a minimum level of commitment that is necessary to ascertain sustainable BEPS implementation. Certain attributes will influence the feasibility of this implementation such as the adaptability of the juridical system to enforce new regulations, the technological infrastructure, the capacity to process and protect mass information, efficient risk assessment procedures and analysis tools, and continual training and development workshops, among others. The BEPS project is still quite young; however, thanks to contributions from CIAT member countries, the BEPS Monitoring database was created. This can provide us with a general overview of how extensively each BEPS Action has been implemented in these countries so far.

Foreign Investors vs. National Tax Measures: Assessing the Role of International Investment Agreements

This chapter focuses on the impact of the international law of foreign investment on tax issues with a view to assessing the interactions between the two regimes and identifying potential signs of convergence. In particular, this chapter focuses on the operation of International Investment Agreements (IIAs) and assesses the role of IIAs from the perspective of foreign investors vis-à-vis National Tax Measures (NTMs). Part I of this chapter provides an understanding of the convergence between investment law and tax issues. This aids in an understanding of the key characteristics of IIAs (such as the definition of investment and the use of specific tax exceptions) and the relationship between currently existing IIAs and tax disputes. Part II analyzes, both quantitatively and qualitatively, the recent trends of tax disputes in investment arbitration. Part III assesses how tax can be seen as the last barrier to cross border investment. Part IV concludes.

Medium-Term Revenue Strategies as a Coordination Tool for DRM and Tax Capacity Building

This chapter investigates the introduction of Medium-Term Revenue Strategies (MTRS) in developing countries as part of technical assistance for tax capacity building. The MTRS concept was devised by the Platform for Collaboration on Tax and is supposed to be a holistic high-level roadmap for tax policy reform around which civil society and external aid donors can coordinate. Tax capacity building for domestic resource mobilization has become a crowded governance field over the last decade with multiple bilateral and multilateral partners involved, sometimes in the same country. While there have been multiple high-level coordination efforts, within-country coordination is still lacking. As such, we investigate the concept’s usefulness as a coordination tool for donors to ensure their assistance is matched with a country’s needs and preferences. We also critically examine the concept’s potential pitfalls and deficiencies in terms of scope and ambition, partners, and legitimacy. We conclude that if the MTRS is evaluated as it is intended, an additional tool in the larger toolbox of coordination in the tax capacity building regime, the concept holds promise but calls for close scrutiny to ensure that they are truly country-owned and country-specific roadmaps.

Tax Incentives in Developing Countries: A Case Study—Singapore and Philippines

The aim of this chapter is twofold. The first aim is to analyse the main features of the tax incentives in developing countries with a case study of two countries, Singapore and the Philippines. Singapore has been regarded in literature as one of the countries that has successfully attracted foreign direct investment; however, it is not yet clear whether this is the result of tax incentives or any other measure. The Philippines is at the time of writing in the process of introducing a comprehensive tax reform program (CTRP) that aims to redesign the tax incentives to become more competitive in the region and to achieve social and economic growth. These countries also belong to the same region (i.e. South East Asia), and therefore, the comparison of the incentives in these countries can also contribute to best practices in the region. Following this comparison, the second aim of this chapter is to evaluate the tax incentives granted in Singapore and the Philippines taking into account a new proposed evaluative framework for tax incentives in light of the Sustainable Development Goals (SDGs).

Tax Expenditure Reporting and Domestic Revenue Mobilization in Africa

The use of tax expenditures (TEs) is an important fiscal practice that is often overlooked in public spending debates. The fiscal cost as well as the lack of effectiveness of TEs can be significant. This chapter describes the state of TE reporting across the world, focusing on Africa. It begins by explaining in detail what TEs are and what their role in government expenditure is. It proceeds by offering examples of the fiscal cost of these provisions, their (in)effectiveness, and the reasons why they are often hard to remove. The main portion of the chapter focuses on the lack and inconsistency of TE reporting. The chapter provides the first results of the “Global Tax Expenditures Database” (GTED), an ongoing project aiming to increase transparency and boost research in the TE field. The GTED reveals that over 64% of African countries do not provide any information on their TEs, while most of the countries that do report on TEs leave out important information such as the policy objectives and beneficiaries of those provisions. Lastly, using the available data, the chapter reports that, on average, TEs in African countries account for 2.8% of GDP and 17.8% of total tax revenue, and being as high as 7.8% (in Senegal) and 58.4% (in Mauritania), respectively.

Negative Spillovers in International Corporate Taxation and the European Union

Jurisdictions can engage in different types of aggressive tax policies to varying degrees. These policies can have negative spillover effects on other jurisdictions. In the realm of corporate taxation, these effects consist of base erosion and profit shifting and perceived pressures to reduce corporate taxes. Both direct and indirect effects undermine the efforts especially of developing countries at mobilising domestic resources to achieve the Sustainable Development Goals. We analyse the intensity of corrosive tax policies by exploiting a new legal dataset compiled for the Corporate Tax Haven Index (CTHI). Relying on rigorously defined indicators, the dataset allows comparative analyses of negative and positive spillover pathways in the corporate income tax systems of 64 jurisdictions. Tax policies under review comprise, for example, preferential tax regimes, extremely low tax rates agreed through secretive tax rulings, economic zones and tax holidays. Comparing the 27 European Union (EU) member states with five African developing countries, we find important differences. Except for two indicators (loss utilisation and economic zones/tax holidays), the European Union members are found to consistently engage in more aggressive corporate tax policies than the African countries. These heightened risks for negative spillovers emanating from the EU27 corporate tax rules stand in conflict with the stated intentions by the European Union to support good governance in tax matters and its commitment to ensure policy coherence for development. The chapter provides recommendations on how to reduce the risks for negative spillovers in corporate taxation and to exit the race to the bottom in corporate taxation.

The Promise of Non-arm’s Length Practices: Is the Destination-Based Cash Flow Tax or Unitary Taxation the Panacea of Which Developing Countries Are in Search?

The issues developing countries face when implementing the arm’s length standard are well known. As a result, the time seems opportune for an alternative paradigm. The unitary taxation system has received considerable attention and comment over the last few years as such an alternative. Some have heralded it as the answer to the many problems brought about by the arm’s length standard. Moreover, some suggest that the destination-based cash flow taxation system is the panacea to the present problems in international tax arising from the prevailing approach to the taxation of global affiliated companies. This article tests whether the destination-based cash flow tax and unitary taxation system continue to hold promise when applied in an African context.

Getting the Short End of the Stick: Power Relations and Their Distributive Outcomes for Lower-Income Countries in Transfer Pricing Governance

It is widely recognized that international corporate taxation holds a distributional bias toward advanced economies and that developing countries only play a marginal role in tax governance-making. Yet, it is the ambition of both the G20 and the Organisation for Economic Co-operation and Development (OECD) to integrate developing countries in the BEPS Inclusive Framework. The Base Erosion and Profit Shifting (BEPS) action is the latest global initiative to update the international framework of corporate taxation and curb corporate tax avoidance. On one hand, the integration for developing countries within the policy-making forums remains incomplete and focused on the implementation of the global tax rules. On the other, even when lower-income countries have a seat at the table, uneven power relations shape the distributional outcomes of the G20-OECD tax reform project. This analysis of the power relations at play during the revision of the transactional profit split method (TPSM) reveals how dominant logics on value creation work against the material interests of developing countries in the distribution of taxing rights. Therefore, for a tax reform to be truly legitimate for developing countries, it should emancipate and even “decolonize” the discourse and ideas of the international tax regime. While the updated OECD guidelines on transfer pricing expanded the size of the overall cake of taxable profits, the dominant logics and criteria of the guidance make it difficult for lower-income countries to obtain a decent slice of the cake and actually eat it.

Policy Coherence for Sustainable Development in International Tax Matters: A Way Forward for Donor Countries?

The actual implementation of Policy Coherence for Sustainable Development (PCSD) in the area of international tax matters has some room for improvement undisputedly. Though civil servants agree that giving with one hand but taking with the other is inefficient and that seeking synergies between different policy areas is a good thing to do, the holistic dialogue between all relevant ministries and stakeholders is often missing. A big hurdle here is the technical subject matter, which makes a productive dialogue among different ministries and stakeholders often tricky, next to a different understanding of what benefits sustainable development. This is why PCSD is often lost in translation and stays a concept that constitutes the neglected hot potato despite being internationally endorsed. This chapter tries to provide some food for thought regarding potential measures donor countries could introduce to improve the alignment between their tax policy and their development effort. Suggestions will be given regarding tax treaty and tax transparency policies of donor countries and mechanisms to enhance cooperation between the tax administration of donor and developing countries. These measures aim at raising the revenues in developing countries, provide skill transfer while also contributing to a favorable investment climate through boosting tax certainty for companies and reducing the risk of double taxation.

Tax Incentives in Pacific Alliance Countries, the BEPS Project (Action 5), and the 2030 Sustainable Development Agenda

The chapter provides a theoretical and conceptual approach to tax incentives and their desirable and problematic characteristics. It then presents the objectives that, from the international scenario, the OECD’s BEPS Project and the Sustainable Development Agenda seek from their good design and implementation. Finally, it presents the current panorama of such incentives in Latin American countries in general, and in those of the Pacific Alliance in particular, analysing, based on a sample of income and value-added tax incentives, their difficulties in meeting international standards. Finally, it proposes a series of public policy recommendations for improvement.