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NO CE T NOCET
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• NO CE T NOCET
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• MARKET FAILURE IN EDUCATION
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→UNDERPROVISION OF RESEARCH AND RECRUITMENT
IN TAX DESIGN AND PUBLIC ECONOMICS
• AN EFFICIENT TAX SYSTEM IS IMPORTANT FOR
GROWTH IN A LARGE WELFARE STATE
• KNOWLEDGE AS COUNTERWEIGHT TO LOBBYISM
• THE PRIVATE SECTOR INVESTS MORE IN TAX
PLANNING EXPERTISE THAN THE PUBLIC SECTOR
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• ONE KEY RESPONSE TO SOME OF THESE CHALLENGES IS TO REQUIRE FIRMS TO DECLARE TAXES ON-LINE
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MULTINATIONALS AND PROFIT SHIFTING
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•(TØRSLØV, WIER, AND ZUCMAN, 2018)
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(CRIVELLI, DE MOOIJ, AND KEEN, 2016)
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• HIGH WEIGHT
• POOR QUALITY
• TAXING LARGE ENTERPRISES (WAGE INCOME HARD TO FIND)
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• BENEFIT FROM HIGHER WAGES AND PRODUCTION OUTWEIGHED BY TAX BASE EROSION
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HOW TO CURB THIN CAPITALIZATION AND EXCESSIVE INTEREST DEDUCTIONS
RATIO RULES (SAFE HARBOR RULES):
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EARNING STRIPPING RULES
•
Assets
Debt
Amount of
Interest that
can be
deducted
1
3𝑠𝑎𝑦 EBIT or EBITDA
Which rule is better?
Interest expenses
up to say 25% of
EBIT or EBITDA
allowed
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•GRESIK, SCHINDLER AND SCHJELDERUP (2018 JPUBE)
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NORWEGIAN TAX COMMITTEE 2013
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GRESIK, SCHINDLER AND SCHJELDERUP (2018 JPUBE)
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AVERAGE PROFITABILITY IN THE ENTIRE POPULATION OF FIRMS IN NORWAY BY FIRM TYPE
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TI/TA = Taxable income / total assets
Bakke, Hopland and Møen (2019)
FCC = Foreign
controlled
corporations
DM NC = Domestic
Controlled affiliates
of Norwegian MNCs
DOM = Domestic
firms
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START OUT AS DOMESTIC, THEN BECOME PART OF MNC GROUP, AND THEN SOME BECOME DOMESTIC AGAIN
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20
40
60
80
100
120
Firm A (domestic) Firm A (MNC owned)
Taxable profit
Main explanation for drop in profitability when firms become multinational is higher costs related to
intermediate goods and overhead often bought from other firms in the group goods (transfer pricing)
drop of 24% in taxable income when firms become multinational
16000 firms in the sample.
Period is 1993 - 2012
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STRICTER TRANSFER PRICING REGULATION COMBINED WITH MORE FREQUENT AUDITS
INTRODUCED IN 2007/08 IN NORWAY. WHAT WAS THE EFFECT?
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2
4
6
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Loss with strict regulation Loss without strict regulation
Overall tax revenue lost to to income shifting by MNCs
in 2012 is 6% for Norway
(Bakke, Hopland, Møen 2019)
Overall lost tax revenue due to profit shifting is 6% (Tørsløv, Wiers and Zucman find 8% on Norwegian data).
OECD 2015 (action 11) assess the global corporate income loss to be in the interval 4-10% of global revenues
Potential Tax GAP:
Using the difference
between MNCs and
domestic firms just
prior to the new
regulation the gap is
13%
6%
13 %
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TRADE FLOWS
• NET VALUE OF TRADE FLOWS CHANGE IN RESPONSE TO CHANGES IN TAX
RATES INCOME SHIFTING
• FOR THE FULL SAMPLE OF FIRMS THE STUDY FINDS THAT A ONE PERCENTAGE POINT
HIGHER TAX RATE ABROAD REDUCES THE NET VALUE OF INTRA-FIRM TRADE BETWEEN 8.6
AND 11.6 PERCENT.
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• ON AVERAGE LARGE SHIFT MORE THAN SMALL
BIG FOUR SHIFTS THE MOST
• BIG FOUR ONE PERCENTAGE POINT HIGHER
TAX RATE ABROAD NET VALUE OF INTRA-FIRM TRADE BY 18 PERCENT
• LARGE FIRMS BIG FOUR ONE PERCENTAGE POINT HIGHER TAX
RATE ABROAD NET VALUE OF INTRA-FIRM TRADE BY 25 PERCENT
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THE DIGITAL ECONOMY: SOME CONCERNS (I)
• BUSINESS MODEL IN MANY DIGITAL FIRMS IS BASED ON BARTER (TAX EVASION)
• EXAMPLE GOOGLE:
– USERS GET ACCESS TO BROWSER FOR FREE; GOOGLE GETS DIGITAL FINGERPRINTS FOR FREE
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→POLICY RESPONSE 1: REQUIRE POSITIVE PRICES ON ALL TRANSACTIONS (DIFFICULT)
→POLICY RESPONSE 2: SEE FINGERPRINTS AS A NATIONAL RESOURCE. NATIONAL FEE TO COLLECT
FINGERPRINTS DEPENDENT ON NUMBER OF USERS (MUCH LIKE FISH QUOTAS - DIFFICULT?)
→POLICY RESPONSE 3: TRANSACTION COST ON SALES (AD REVENUE) ABOVE A THRESHOLD (FRANCE, UK)
→POLICY RESPONSE 4: OECD PILLARS TO TAX DIGITAL FIRMS BASED ON VALUE CREATION (IN PROCESS)
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THE DIGITAL ECONOMY: SOME CONCERNS (II)
• DIGITAL ECONOMY IS BASED ON INTELLECTUAL PROPERTY
• PATENTS MOVED TO TAX HAVENS (KARINSKY AND RIEDEL 2012)
• INCOME SHIFTED BY ROYALTY
→ POLICY RESPONSE: SOURCE TAX ON ROYALTY EQUAL TO THE CORPORATE RATE
• SOME DIGITAL BUSINESS MODEL BASED ON TAX EVASION (AVOID THIRD PARTY REPORTING)
• AIRBNB HOSTS SELF-REPORT
• UBER DRIVERS SELF-REPORT
• WE KNOW FROM RESEARCH THAT SELF-REPORTING INCREASES TAX EVASION
→ POLICY RESPONSE: FORCE THE DIGITAL FIRMS (JUST LIKE DOMESTIC FIRMS) TO REPORT INCOME
→ AIRBNB: REPORT INCOME ACCRUED TO THOSE WHO RENT OUT THEIR HOUSES
→ UBER: REPORT DRIVER PAYMENTS
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FOOD FOR THOUGHT
One single transaction: Passenger pays driver $ 10Passenger
pay $ 10
through
the app to
Raiser NL
UBER has effectively divided what was a single transaction into three transactions
(1) Payment by passenger; (2) fee for use of the app; (3) payment to driver.
Is this an artificial construct to save tax?
Uber (Rasier Ltd)
Netherlands
Driver pay
Raiser
$2 for app
use
Raiser pay
$8 to driver
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Guttorm SchjelderupHead of Center
Jarle MøenDeputy Head of Center Dirk Schindler
Floris T. Zoutman Evelina G. Zoutman Arnt O. Hopland
Tina Søreide
10 professors
Ingrid Sjursen
Aija PolokovaAndreas Olden
Mohammed Mardan Maximillian Todenhaupt
Henrik Svensli
Steffen Juranek
Jonas Andersson
Thomas Lange (NTA)
4 assistant professors
5 PhD students
Øivind Andre Aase (HVL)
+ several
affliated
NHH staff
members,
emeriti
and
adjunct
professors
Traini Simone
Fred Schroyen Juranek