International taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform done on a multilateral basis—also known as the OECD’s Base Erosion and Profit Shifting (BEPS) initiative—may have additional positive effects beyond, at least theoretically, better distributing tax revenue according to economic activity. A recent TPC/UCLA conference on international tax reform highlighted a less discussed perspective of the potential benefits of so called multilateral agreement in international tax reform: it might increase our ability to cure cancer.
A seldom highlighted angle of the much-debated BEPS project is the social benefit it can create. While the aspect of tax revenues understandably is the key item in the discourse, trimming tax planning efforts by the world’s multinational corporations may have substantial, perhaps overlooked, benefits.
Tax planning is a dead weight loss to society, because it leads to allocative inefficiencies. Scholars at the conference therefore argued that, in a welfare perspective, less resources devoted to such non-productive uses of time could lead to more beneficial activity taking place instead, namely research into curing cancer. Although such an argument is abstract, it is valid.
However, whether the BEPS project will be able to unlock such long-term social benefits is unclear. Many pundits and tax scholars are skeptical of the prospects of implementing the recommendations set forth. Moreover, eventual agreements might not bring much benefit at all. An example underscored at the TPC/UCLA conference related to the over 3000 current bilateral tax treaties in existence between countries. If reform of these current accords are not included in a deal that is struck—which conference participants viewed as unlikely—a large part of the tax planning efforts taking place will continue.
A cure to cancer obviously does not hinge upon a favorable BEPS agreement. But if there is a reduction in tax planning, as a result of a multilateral agreement in international tax reform—according to scholars, there may be more resources devoted to other productive activities.Share