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Faculty Scholarship

Making International Tax Laws Just

Professor Diane Ring gives voice to emerging nations’ concerns.



Pocket Résumé

Diplomas: Harvard University, AB, JD. Interests: International Taxation, Corporate Taxation, Ethics in Taxation, Taxation of Financial Instruments. Books: Co-author of three casebooks on taxation. Cutting Edge: Forthcoming article on regulating controversial income share agreements, in which individuals promise a share of their future personal income to investors.

The Idea: The international tax regime is broken. Among other things, it allows the erosion of the tax base of developing countries and undermines their capacity for growth. These countries need access to tax-relevant information from multinational corporations that is now hidden from view. Thomas F. Carney Distinguished Scholar Diane Ring is analyzing proposals to improve the situation. Her guidance will help developing countries advocate for their interests in efforts to reform international tax laws.

Global Impact: Current international tax rules allow multinational corporations like Cadbury, Starbucks, Apple, Google, and General Electric to lower their taxes or avoid paying taxes altogether by shifting their profits from countries where their profits are made to countries with lower tax rates. Consequently, some multinational corporations pay as little as 5 percent in corporate taxes, even as smaller domestic businesses pay up to 30 percent.

The result is what’s known as base erosion and profit-shifting, or BEPS. BEPS deprives all countries of tax revenues. But poor countries rely heavily on tax revenues from multinational corporations, so BEPS hits them especially hard. For example, 70 percent of Rwanda’s tax base and 88 percent of Nigeria’s comes from multinationals. BEPS undercuts the ability of developing countries to build infrastructure, provide social services, and open opportunities for their people.

The G20 and the Organization for Economic Cooperation and Development (OECD) have organized the BEPS Project to address the problem on a global scale. In 2013, the OECD issued a plan to stem BEPS through substantive law reform. But all the law reform in the world won’t matter without transparency. Unless multinational corporations disclose tax information to the governments of developing countries, those nations cannot adequately assess and collect the taxes that are owed them. The BEPS Project, therefore, includes action items related to transparency and disclosure.

Enter Professor Diane Ring.

She was recruited to work on the BEPS Project for the United Nations by BC Law Professor Emeritus Hugh J. Ault, a consultant to the UN’s Financing for Development Office. A chapter she is contributing to a UN volume on protecting the tax base of developing countries analyzes the BEPS action items related to transparency and disclosure in the context of resource-strapped nations. As the BEPS Action Plan moves forward, these countries will be able to use Ring’s work to advocate for reforms that better address their needs.

It’s a complicated task. India, China, Brazil, Honduras, Costa Rica, and Sierra Leone are among the world’s developing nations. But they clearly differ widely in, as Ring describes it, “their domestic infrastructure, their economic position, their existing network of tax agreements and tools, and their substantive tax system.” So the point isn’t to make recommendations, Ring says; it’s to provide developing countries with the information and analysis they need to make decisions about how best to approach the issues that the BEPS project raises.

“The project I have been involved in this year is to look at international tax issues from a developing country perspective and think about where there is going to be a gap or a conflict and what that means.” —Professor Diane Ring

Within the BEPS Project’s fifteen-step action plan, Action Items 11, 12, and 13 pertain to disclosure and transparency. Together, they call for: developing ways to ascertain and monitor the scope and impact of the BEPS problem and of attempts to solve it; requiring corporations to disclose their aggressive tax planning arrangements; establishing reporting standards and cross-border information sharing; and using a common template for corporations to report on their country-by-country economic activities.

Developing countries often lack adequate financial reporting requirements, so they can’t legally demand information on a corporation’s assets, accounts, transactions, and business activities. They need to reform their own domestic laws as part of solving their BEPS problems. The disclosure and reporting requirements and mechanisms contemplated in the action items can be helpful guides to developing countries as they reform their laws, Ring writes.

These countries don’t always have the human, technological, and systemic resources to enforce disclosure laws and to audit multinational corporations operating within their borders. The reforms proposed under the BEPS Project will help only insofar as they can ease these constraints, Ring concludes.

Finally, some important tax information can only come from other nations—but developing countries often have few treaty relationships through which such information would be exchanged. Ring writes that transparency and disclosure reforms that contemplate more global, as opposed to country-to-country, solutions will be of greater benefit to developing nations.

“International tax law itself has always been fascinating,” Ring says. “But I have very much appreciated the opportunity to take my research and knowledge in this field and use it to help tax policy makers and tax administrators in developing countries make more informed choices about their tax laws, tax administration, and tax policy options as they too seek to secure their tax base.”