Global Tax Revenue Is Not Zero-Sum

Bloomberg Tax Liz Chien

A conversation with Liz Chien, vice president of global tax and chief tax counsel, Ripple Labs

As a former policy advisor at the Organisation for Economic Cooperation and Development (OECD), Chien worked on international tax reform relating to the digital economy. She discusses what she sees as the biggest challenges with the current process.

What is your biggest concern about the OECD’s current process for addressing taxation of the digital economy under BEPS Action 1, and specifically under Pillar I?

The greatest risk is that the OECD’s current process will not restore stability to the international tax system. Returning to a stable international system requires a common belief amongst countries that global tax revenue is not zero-sum, and that instituting policies to facilitate cross-border investment and promote economic growth, which includes eliminating double taxation, results in increasing the global tax revenue pot for all countries.

Global liberalism served as the basis of much of the economic growth across all countries for the past 60+ years. In this current era of emerging protectionism, the task in front of the OECD is certainly doable but more challenging than at any other moment in its history.

Are there any steps that U.S. multinationals should be taking in anticipation of the outcome of that process? If so, what are they?

In an environment of uncertainty, U.S. multinationals should carefully study and risk-assess any major cross-border restructuring or investment. If the risks are substantially in only one jurisdiction, then existing channels to obtain certainty (e.g., private letter ruling, unilateral APA, etc.) can be evaluated.

Should tax managers be concerned about efforts by some U.S. states (e.g., Hawaii and Pennsylvania) to rely on Wayfair to impose income taxes on remote sellers?

Tax managers should be concerned with any state that is revenue-focused and open to interpreting Wayfair in a manner that supports the state’s revenue objectives. Wayfair involved principles of nexus for sales tax purposes. States relying on Wayfair to support economic nexus for income tax purposes may find that challenged under constitutional principles

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