Tax avoidance by multinationals, and the creative use of loopholes, has long been part of the international tax system. Governments have usually responded with targeted measures to close those loopholes. But after the Great Recession, many national governments faced extraordinarily tight budgets and huge debt burdens. It was therefore especially galling for politicians in the United States and Europe to see large profitable multinationals such as Google, Apple, and Starbucks apparently paying less than their “fair” share of taxes.
In response, in 2013 the finance ministers of the world’s largest countries—the group known as the G20—and the OECD initiated a sweeping reassessment of the global tax system known as the “Base Erosion and Profit Shifting” (BEPS) Project. The OECD tax experts at the BEPS Project, based in Paris, were told to develop a set of principles to “ensure that profits are taxed where economic activities generating the profits are performed and where value is created.”What’s more, they were also told to finish their work on an accelerated schedule, by the end of 2015.
It is now the middle of 2015, and the broad outlines of the new BEPS principles are becoming clear. This paper examines these new principles, as laid out by the BEPS project, and analyzes their likely impact on tax revenues and jobs. We find that unless Congress and the Obama Administration act quickly to reform the U.S. corporate tax system, the BEPS principles give multinationals a very strong incentive to move high-paying creative and research jobs from the United States to Europe.
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