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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | The Impact of the Basic Erosion and Profit Shifting Action Plan from OECD on Multinational Enterprises with Digital Businesses |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 55 |
| Date | 2015 |
| Abstract Text | Over the past decades, the economy has grown exponentially in step with the globalisation (OECD, 2015b, p. 9). The growth of domestic and international trading, led to a change in companies from a country-specific model to a global model (OECD, 2013a, p.7). The shift in operating models challenges the domestic taxations and the underlying definitions of tax basis. Additionally, the international taxation and the domestic taxation are challenged through the digital economy (OECD, 2013a, p.10) According to various authors (Lee-Makiyama and Verschelde, OECD, and Owen), the internet trade and e-commerce has pushed base erosion and profit shifting, because the place in which the service or trade is performed is not identical with the jurisdiction of physical presence. Based on this background, the Organisation for Economic Co-operation and Development (OECD) originated a new nexus to implement a suitable taxation on digital business income (Lee-Makiyama and Verschelde, 2014, p. 8). The Master thesis shows how the new nexus impacts Multinational enterprises in digital economy. First, a short introduction on the international taxation in accordance with the OECD Model is given. Afterwards, an artificial corporation is created based on the model of Apple and Google. To create a corporation, certain things have to be considered as for example the structure of the corporation or the place of residence. Only countries which are directly linked to the comparison in the last part of the thesis are presented and are not considered as tax havens. For the selected countries like the United States, the United Kingdom, Switzerland, or Luxembourg the most important taxes are presented. These listing of taxes helps to develop an artificial corporation with optimally planned taxation. Afterwards, the structure of Apple’s and Google’s tax constructs were investigated. Based on the given model, the structure of the ‘Novy’ Company was chosen. In the last part of the thesis, the comparison of the overall taxation at the actual taxation and after the implementation of BEPS. Due to the fact, that in the second part two tax structures were chosen, the comparison of the BEPS impact is performed on both constructs. The first construct is a complex structure with entities all over the world, called “Double Irish with a Dutch Sandwich”. In this corporation structure, taxes on income may be avoided because in an optimal case a tax rate of 0% is applicable. The IP-Holding company is the other way of avoiding taxes on an optimal level. The holding company has to be located in a country with an intellectual property regime like Luxembourg. Within the structure of the IP-Holding company, digital income is taxed at an acceptably low rate of 8%. A hypothetical world is created in regard with the suggestions on the BEPS actions of the OECD (2015) to perform the comparison. It is assumed that the OECD found a way to correctly attribute the income to its source and that any royalties are paid at arm’s length ruling. Due to these restrictions, the overall tax rates increase exponentially. The first difference appears already on the operating company, which is now liable to tax on the income generated abroad but attributable to its source country. The income generated in Switzerland, without having a permanent establishment, is liable to Swiss income tax or withholding tax. Furthermore, the royalties paid to the parent companies must be calculated on arm’s length rule. Consequentially, the shifting of profits without economic base is forbidden. All these changes lead to a tax rate increase of 15% on the “Double Irish with a Dutch Sandwich” and 20% on the IP-Holding company. In summary, the action plan on base erosion and profit shift might have a large impact on the taxation structure of the multinational companies. Although, the effect is only given if the new nexus rulings of the OECD is applied on a worldwide basis. |
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