Tax lien
A tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes. In the United States, a federal tax lien may arise in connection with any kind of federal tax, including but not limited to income tax, gift tax, or estate tax. Internal Revenue Code section 6321 provides: Sec. 6321. LIEN FOR TAXES. If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belong to such person. Internal Revenue Code section 6322 provides: Sec. 6322. PERIOD OF Tax LienUnless another date is fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time.
The term "assessment" refers to the statutory assessment made by the Internal Revenue Service under 26 U. S. C. § 6201. The "person liable to pay any tax" described in section 6321 must pay the tax within ten days of the written notice and demand. If the taxpayer fails to pay the tax within the ten-day period, the tax lien arises automatically, is effective retroactively to the date of the assessment though the ten-day period expires after the assessment date. Under the doctrine of Glass City Bank v. United States, the tax lien applies not only to property and rights to property owned by the taxpayer at the time of the assessment, but to after-acquired property; the statute of limitations under which a federal tax lien may become "unenforceable by reason of lapse of time" is found at 26 U. S. C. § 6502. For taxes assessed on or after November 6, 1990, the lien becomes unenforceable ten years after the date of assessment. For taxes assessed on or before November 5, 1990, a prior version of section 6502 provides for a limitations period of six years after the date of assessment.
Various exceptions may extend the time periods. A federal tax lien arising by law as described above is valid against the taxpayer without any further action by the government; the general rule is that where two or more creditors have competing liens against the same property, the creditor whose lien was perfected at the earlier time takes priority over the creditor whose lien was perfected at a time. Thus, if the government properly files a Notice of Federal Tax Lien before another creditor can perfect its own lien, the tax lien will take priority over the other lien. To "perfect" the tax lien against persons other than the taxpayer, the government must file the NFTL in the records of the county or state where the property is located, with the rules varying from state to state. At the time the notice is filed, public notice is deemed to have been given to the third parties that the Internal Revenue Service has a claim against all property owned by the taxpayer as of the assessment date, to all property acquired by the taxpayer after the assessment date.
Although the federal tax lien is effective against the taxpayer on the assessment date, the priority right against third party creditors arises at a time: the date the NFTL is filed. The form and content of the notice of federal tax lien is governed only by federal law, regardless of any requirements of state or local law; the NFTL is a device which gives notice to interested parties of the existence of the federal tax lien. Thus, the NFTL's function is to obtain priority for the federal tax lien; the filing or refiling of the NFTL has no effect on the expiration date of collection statute of limitations provided in §6502. Accordingly if the NFTL is refiled, if no event extends the collection statute of limitations, the IRS cannot take any further administrative collection action. Conversely, the IRS's failure to refile the NFTL does not affect the existence of an otherwise valid underlying federal tax lien, i.e. the underlying lien remains valid but loses its priority. In certain cases, the lien of another creditor may take priority over a federal tax lien if the NFTL was filed before the other creditor's lien was perfected.
Some examples include the liens of certain purchasers of securities, liens on certain motor vehicles, the interest held by a retail purchaser of certain personal property. Federal law allows a state—if the state legislature so elects by statute—to enjoy a higher priority than the federal tax lien with respect to certain state tax liens on property where the related tax is based on the value of that property. For example, the lien based on the annual real estate property tax in Te
Black market
A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules. If the rule defines the set of goods and services whose production and distribution is prohibited by law, non-compliance with the rule constitutes a black market trade since the transaction itself is illegal. Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy. Examples include the drug trade, illegal currency transactions and human trafficking. Violations of the tax code involving income tax evasion constitute membership in the unreported economy; because tax evasion or participation in a black market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority. Cash usage is the preferred medium of exchange in illegal transactions since cash usage does not leave a footprint.
Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or skirt price controls or rationing. The totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and services, e.g. "the black market in bush meat". The black market is distinct from the grey market, in which commodities are distributed through channels that, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, the white market, in which trade is legal and official. Black money is the proceeds of an illegal transaction, on which income and other taxes have not been paid, which can only be legitimised by some form of money laundering; because of the clandestine nature of the black economy it is not possible to determine its size and scope. The literature on the black market has not established a common terminology and has instead offered many synonyms including: subterranean. There is no single underground economy.
These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape or are excluded from the institutional system of rules, rights and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate. Four major underground economies can be identified: the illegal economy the unreported economy the unrecorded economy the informal economyThe "illegal economy" consists of the income produced by those economic activities pursued in violation of legal statutes defining the scope of legitimate forms of commerce. Illegal economy participants engage in the production and distribution of prohibited goods and services, such as drug trafficking, arms trafficking, prostitution; the "unreported economy" consists of those economic activities that circumvent or evade the institutionally established fiscal rules as codified in the tax code.
A summary measure of the unreported economy is the amount of income that should be reported to the tax authority but is not so reported. A complementary measure of the unreported economy is the "tax gap", namely the difference between the amount of tax revenues due the fiscal authority and the amount of tax revenue collected. In the U. S. unreported income is estimated to be $2 trillion resulting in a "tax gap" of $450–$600 billion. The "unrecorded economy" consists of those economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies. A summary measure of the unrecorded economy is the amount of unrecorded income, namely the amount of income that should be recorded in national accounting systems but is not. Unrecorded income is a particular problem in transition countries that switched from a socialist accounting system to UN standard national accounting. New methods have been proposed for estimating the size of the unrecorded economy.
But there is still little consensus concerning the size of the unreported economies of transition countries. The "informal economy" comprises those economic activities that circumvent the costs and are excluded from the benefits and rights incorporated in the laws and administrative rules covering property relationships, commercial licensing, labor contracts, financial credit and social security systems. A summary measure of the informal economy is the income generated by economic agents that operate informally; the informal sector is defined as the part of an economy, not taxed, monitored by any form of government, or included in any gross national product, unlike the formal economy. In developed countries the informal sector is characterized by unreported employment; this is hidden from the state for tax, social security or labour law purposes but is legal in all other aspects. On the other hand, the term black market can be used in reference to a specific part of the economy in which contraband is traded.
Goods and services acquired illegally and/or transacted for in an illegal manner may exchange above or below the price of legal market transactions: They may be cheaper than legal market prices. The supplier taxes; this is the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, so for
Revenue stamp
A revenue stamp, tax stamp, duty stamp or fiscal stamp is a adhesive label used to collect taxes or fees on documents, alcoholic drinks and medicines, playing cards, hunting licenses, firearm registration, many other things. Businesses purchase the stamps from the government, attach them to taxed items as part of putting the items on sale, or in the case of documents, as part of filling out the form. Revenue stamps look similar to postage stamps, in some countries and time periods it has been possible to use postage stamps for revenue purposes. Revenue stamps are stamps used to collect fees, they are issued by governments and local, by official bodies of various kinds. They take many forms and may be gummed and ungummed, perforated or imperforate, printed or embossed, of any size. In many countries, they are as detailed in their design as banknotes; the high value of many revenue stamps means that they may contain security devices to prevent counterfeiting. The Revenue Society has defined revenue stamps as "...stamps, whether impressed, adhesive or otherwise, issued by or on behalf of International, National or Local Governments, their Licensees or Agents, indicate that a tax, duty or fee has been paid or prepaid or that permission has been granted."
In the Ottoman empire, Damga resmi was in use by the sixteenth century. Records of tax revenue from stamps for silk provide evidence of changes in silk production over time; the use of revenue stamps goes back further than that of postage stamps. Their use became widespread in the 19th century inspired by the success of the postage stamp, motivated by the desire to streamline government operations, the presence of a revenue stamp being an indication that the item in question had paid the necessary fees. Revenue stamps have become less seen in the 21st century, with the rise of computerization and the ability to use numbers to track payments accurately. There are a great many kinds of revenue stamps in the world, it is that many remain unrecorded. Both national and local entities have issued them. Governments have sometimes combined the functions of revenue stamps. In the former British Empire, such stamps were inscribed "Postage and Revenue" to reflect their dual function. Other countries have allowed revenue stamps to be used for postage or vice versa.
A revenue stamp authorized subsequently for postal use is known as a postal fiscal. Bhutan, for instance, authorized the use of revenue stamps for postal purposes from 1955 until the first proper postage stamps of the country were issued in 1962. In the Stanley Gibbons catalog, this type of stamp has an F prefix. While revenue stamps resemble postage stamps, they are not intended for use on mail and therefore do not receive a postal cancellation; some countries such as Great Britain have issued stamps valid for both postage and revenue, but this practice is now rare. Many different methods have been used to cancel revenue stamps, including pen cancels, inked handstamps, embossing, hole punching or tearing. From around 1900, United States revenue stamps were required to be mutilated by cutting, after being affixed to documents, in addition to being cancelled in ink. A class of office equipment was created to achieve this which became known as "stamp mutilators". Revenue stamps were once collected by philatelists and given the same status as postage stamps in stamp catalogues and at exhibitions.
After World War One, they declined in popularity due to being excluded from catalogues as the number of postage stamps issued rose and crowded revenues out. The lowest point in revenue philately was during the middle years of the twentieth century. A Stanley Gibbons children's stamp album from the 1950s warned in its introduction: "Since Philately is the collecting of stamps that are employed in connection with the Posts, do not put in your album fiscals, telegraph stamps, tobacco-tax labels and other such strange things as are found in some collections." This is not a definition of philately. More revenue philately has become popular again and now has its own FIP Commission and is an approved category in FIP endorsed stamp exhibitions. Many catalogues have been issued by specialist publishers and dealers but revenue stamps still do not feature in some of the most popular catalogues, for instance by Stanley Gibbons and Michel, unless they are revenue and postage stamps. However, both the standard Scott and the Scott Specialised United States catalogue feature US revenue stamps.
The leading catalogue for revenue stamps of the United Kingdom, the British Commonwealth and several European countries is the Barefoot Catalogue. One of the earliest uses of revenue stamps was to pay Court Fees. Stamps were used in the Indian feudal states as early as 1797 50 years before the first postal stamps. Although India is only one of several countries that have used tax stamps on legal documents, it was one of the most prolific users; the practice is entirely stopped now due to the prevalence of forgeries which cost the issuing government revenue. The tax on documents commonly known as stamp duty, is one of the oldest uses of revenue stamps being invented in Spain, introduced in the Netherlands in the 1620s reaching France in 1651 and England in 1694. Governments enforce the payment of the tax by making unstamped documents unenforcable in court; the tax has been applied to contracts, tenancy agree
Progressive tax
A progressive tax is a tax in which the average tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate; the term can be applied to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence to those with a higher ability-to-pay; the opposite of a progressive tax is a regressive tax, where the average tax rate or burden decreases as an individual's ability to pay increases. The term is applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income, it can apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects. For example, a wealth or property tax, a sales tax on luxury goods, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.
Progressive taxation is suggested as a way to mitigate the societal ills associated with higher income inequality, as the tax structure reduces inequality, but economists disagree on the tax policy's economic and long-term effects. One study suggests progressive taxation can be positively associated with happiness, the subjective well-being of nations and citizen satisfaction with public goods, such as education and transportation. In the early days of the Roman Republic, public taxes consisted of assessments on owned wealth and property; the tax rate under normal circumstances was 1% of property value, could sometimes climb as high as 3% in situations such as war. These taxes were levied against land and other real estate, animals, personal items and monetary wealth. By 167 BC, Rome no longer needed to levy a tax against its citizens in the Italian peninsula, due to the riches acquired from conquered provinces. After considerable Roman expansion in the 1st century, Augustus Caesar introduced a wealth tax of about 1% and a flat poll tax on each adult, this made the tax system less progressive.
The first modern income tax was introduced in Britain by Prime Minister William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment for the French Revolutionary War. Pitt's new graduated income tax began at a levy of 2 old pence in the pound on incomes over £60 and increased up to a maximum of 2 shillings on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million. Pitt's progressive income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation; the income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. The United Kingdom income tax was reintroduced by Sir Robert Peel in the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds.
The new income tax, based on Addington's model, was imposed on incomes above £150. Although this measure was intended to be temporary, it soon became a fixture of the British taxation system. A committee was formed in 1851 under Joseph Hume to investigate the matter, but failed to reach a clear recommendation. Despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, extended it to cover the costs of the Crimean War. By the 1860s, the progressive tax had become a grudgingly accepted element of the English fiscal system. In the United States, the first progressive income tax was established by the Revenue Act of 1862; the act was signed into law by President Abraham Lincoln, replaced the Revenue Act of 1861, which had imposed a flat income tax of 3% on incomes above $800. The Sixteenth Amendment to the United States Constitution, adopted in 1913, permitted Congress to levy all income taxes without any apportionment requirement.
By the mid-20th century, most countries had implemented some form of progressive income tax. Indices such as the Suits index, Gini coefficient, Kakwani index, Theil index, Atkinson index, Hoover index have been created to measure the progressivity of taxation, using measures derived from income distribution and wealth distribution; the rate of tax can be expressed in two different ways. In most progressive tax systems, both rates will rise as the amount subject to taxation rises, though there may be ranges where the marginal rate will be constant; the average tax rate of a tax payer will be lower than the marginal tax rate. In a system with refundable tax credits, or income-tested welfare benefits, it is possible for marginal rates to fall as income rises, at lower levels of income. Tax laws might not be indexed to inflation. For example, some tax laws may ignore inflation completely. In a progressive tax system, failure to index the brackets to inflation will result in effective tax increases, as inflation
Dutch Sandwich
Dutch Sandwich is a base erosion and profit shifting corporate tax tool, used by U. S. multinationals to avoid incurring EU withholding taxes on untaxed profits as they were being moved to non-EU tax havens. These untaxed profits could have originated from within the EU, or from outside the EU, but in most cases were routed to major EU corporate-focused tax havens, such as Ireland and Luxembourg, by the use of other BEPS tools; the Dutch Sandwich was used with Irish BEPS tools such as the Double Irish, the Single Malt and the Capital Allowances for Intangible Assets tools. In 2010, Ireland changed its tax-code to enable Irish BEPS tools to avoid such withholding taxes without needing a Dutch Sandwich; the structure relies on the tax loophole that most EU countries will allow royalty payments be made to other EU countries without incurring withholding taxes. However, the Dutch tax code allows royalty payments to be made to several offshore tax havens, without incurring Dutch withholding tax; the Dutch Sandwich therefore behaves like a "backdoor" out of the EU corporate tax system and into un-taxed non-EU offshore locations.
These royalty payments require the creation of intellectual property licensing schemes, therefore the Dutch sandwich is limited to specific sectors that are capable of generating substantial IP. This is most common in the technology, medical devices and specific industrials sectors, its creation is attributed to Joop Wijn after lobbying from U. S. tax lawyers from 2003–2006. Former venture-capital executive at ABN Amro Holding NV Joop Wijn becomes State Secretary of Economic Affairs in May 2003 not long before the Wall Street Journal reports about his tour of the US, during which he pitches the new Netherlands tax policy to dozens of American tax lawyers and corporate tax directors. In July 2005, he decides to abolish the provision, meant to prevent tax dodging by American companies, in order to meet criticism from tax consultants; the Dutch Sandwich is most associated with the double Irish BEPS tax structure, Irish-based US technology multinationals such as Google. The Double Irish is the largest BEPS tool in history, helping US technology and life sciences multinationals shield up to US$100 billion per annum from taxation.
The Double Irish uses an Irish company, incorporated in Ireland, thus the US-tax code regards it as foreign, but is "managed and controlled" from, Bermuda. The Dutch Sandwich, with the Dutch company as the "dutch slice" in the "sandwich", is used to move money to this Irish company, without incurring Irish withholding tax. In 2013, Bloomberg reported that lobbying by PriceWaterhouseCoopers Irish Managing Partner Feargal O'Rourke, who Bloomberg labelled "grand architect" of the Double Irish, led to the Irish Government to relax the rules for making Irish royalty payments to non-EU companies, without incurring Irish withholding tax; this removed the explicit need for the Dutch Sandwich, but there are still several conditions that will not suit all types of Double Irish structures, thus several US multinationals in Ireland continued with the classic "Double Irish with a Dutch Sandwich" combination. After pressure from the EU, the Double Irish BEPS tool was closed to new users in 2015, new Irish BEPS tools were created to replace it: Microsoft's and Allergan's Single Malt Irish BEPS tool.
The Dutch Sandwich has made Netherlands the largest of the top five global Conduit OFCs identified in a 2017 analysis published by Nature of offshore financial centres titled: "Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network". The five global Conduit OFCs are countries not formally labeled "tax havens" by the EU/OCED, they are responsible for routing half the flows global corporate tax avoidance to the twenty-four Sink OFCs, without incurring tax in the Conduit OFC. Conduit OFCs rely on major offices of large law and accounting firms to create legal vehicles, where as Sink OFCs have smaller operations. For example, Ireland has the BEPS tools to enable US IP-heavy multinationals to reroute global profits into Ireland, tax-free; the Netherlands enables these Irish profits to get to a classical tax haven without incurring EU withholding tax. Tax exporting Tax inversion Tax haven Conduit and Sink OFCs Bermuda Black Hole Irish Financial Services Centre Feargal O'Rourke ABC What is a Double Irish with a Dutch Sandwich
Tax avoidance
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax, payable by means that are within the law. Tax sheltering is similar, although unlike tax avoidance tax sheltering is not legal. Tax havens are jurisdictions. While forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, it is never considered moral in the court of public opinion and in journalism. Many corporations and businesses which take part in the practice experience a backlash, either from their active customers or online. Conversely, benefiting from tax laws in ways which were intended by governments is sometimes referred to as "tax planning"; the World Bank's World Development Report 2019 on the future of work supports increased government efforts to curb tax avoidance as part of a new social contract focused on human capital investments and expanded social protection. Tax mitigation, "tax aggressive", "aggressive tax avoidance" or "tax neutral" schemes refer to multi-territory schemes that fall into the grey area between commonplace and well-accepted tax avoidance and evasion, but are viewed as unethical if they are involved in profit-shifting from high-tax to low-tax territories and territories recognised as tax havens.
Since 1995, trillions of dollars have been transferred from OECD and developing countries into tax havens using these schemes. Laws known as a General Anti-Avoidance Rule statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including Canada, New Zealand, South Africa, Hong Kong and the United Kingdom. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v. Helvering and in the UK through the Ramsay case. Though the specifics may vary according to jurisdiction, these rules invalidate tax avoidance, technically legal but not for a business purpose or in violation of the spirit of the tax code. Related terms for tax avoidance include tax sheltering; the term avoidance has been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law such as like-kind exchanges.
The United States Supreme Court has stated that "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." Tax evasion, on the other hand, is the general term for efforts by individuals, corporations and other entities to evade taxes by illegal means. Both tax evasion and some forms of tax avoidance can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system. An anti-avoidance measure is a rule that prevents the reduction of tax by legal arrangements, where those arrangements are put in place purely to reduce tax, would not otherwise be regarded as a reasonable course of action. A company may choose to avoid taxes by establishing their company or subsidiaries in an offshore jurisdiction. Individuals may avoid tax by moving their tax residence to a tax haven, such as Monaco, or by becoming a perpetual traveler, they may reduce their tax by moving to a country with lower tax rates.
However, a small number of countries tax their citizens on their worldwide income regardless of where they reside. As of 2012, only the United States and Eritrea have such a practice, whilst Finland, Hungary and Spain apply it in limited circumstances. In cases such as the US, taxation cannot be avoided by transferring assets or moving abroad; the United States is unlike all other countries in that its citizens and permanent residents are subject to U. S. federal income tax on their worldwide income if they reside temporarily or permanently outside the United States. U. S. citizens therefore cannot avoid U. S. taxes by emigrating from the U. S. According to Forbes magazine some citizens choose to give up their United States citizenship rather than be subject to the U. S. tax system. S. citizens who reside outside the U. S. may be able to exclude some salaried income earned overseas from income in computing the U. S. federal income tax. The 2015 limit on the amount that can be excluded is US$100,800.
In addition, taxpayers can deduct certain foreign housing amounts. They may be entitled to exclude from income the value of meals and lodging provided by their employer; some American parents don’t register their children’s birth abroad with American authorities, because they do not want their children to be required to report all earnings to the IRS and pay American taxes for their entire lives if they never visit the United States. Most countries impose taxes on income earned or gains realized within that country regardless of the country of residence of the person or firm. Most countries have entered into bilateral double taxation treaties with many other countries to avoid taxing nonresidents twice—once where the income is earned and again in the country of residence —however, there are few double-taxation treaties with countries regarded as tax havens. To avoid tax, it is not enough to move one's assets to a
Base erosion and profit shifting
Base erosion and profit shifting refers to corporate tax planning strategies used by multinationals to "shift" profits from higher–tax jurisdictions to lower–tax jurisdictions, thus "eroding" the "tax–base" of the higher–tax jurisdictions. The Organisation for Economic Co-operation and Development define BEPS strategies as also: "exploiting gaps and mismatches in tax rules". Corporate tax havens offer BEPS tools to "shift" profits to the haven, additional BEPS tools to avoid paying taxes within the haven. BEPS tools are associated with U. S. technology and life science multinationals. Tax academics showed use of the BEPS tools by U. S. multinationals, via tax havens, maximised long–term U. S. exchequer receipts and shareholder return, at the expense of others. Initiatives to curb BEPS by the OECD, by the Trump Administration have failed. A January 2017 OECD report estimates that BEPS tools are responsible for tax losses of circa $100–240 billion per annum. A June 2018 report by tax academic Gabriel Zucman, estimated that the figure is closer to $200 billion per annum.
The Tax Justice Network estimated that profits of $660 billion were "shifted" in 2015. The effect of BEPS tools is most felt in developing economies, who are denied the tax revenues needed to build infrastructure. Most BEPS activity is associated with industries with intellectual property, namely Technology, Life Sciences. IP is described as the raw materials of tax avoidance, IP–based BEPS tools are responsible for the largest global BEPS income flows. Corporate tax havens have some of the most advanced IP tax leglislation in their statutate books. Most BEPS activity is most associated with U. S. multinationals, is attributed to the historical U. S. "worldwide" corporate taxation system. Pre the Tax Cuts and Jobs Act of 2017, the U. S. was one of only eight jurisdictions to operate a "worldwide" tax system. Most global jurisdictions operate a "territorial" corporate tax system with lower tax rates for foreign sourced income, thus avoiding the need to "shift" profits. U. S. multinationals use tax havens more than multinationals from other countries which have kept their controlled foreign corporations regulations.
No other non–haven OECD country records as high a share of foreign profits booked in tax havens as the United States. This suggests that half of all the global profits shifted to tax havens are shifted by U. S. multinationals. By contrast, about 25% accrues to E. U. countries, 10% to the rest of the OECD, 15% to developing countries. Research in June 2018, identified Ireland as the world's largest BEPS hub. Ireland is larger; the largest global BEPS hubs, from the Zucman–Tørsløv–Wier table below, are synonymous with the top 10 global tax havens: Mostly consists of The Cayman Islands and The British Virgin Islands Research in September 2018, by the National Bureau of Economic Research, using repatriation tax data from the TCJA, said that: "In recent years, about half of the foreign profits of U. S. multinationals have been booked in tax haven affiliates, most prominently in Ireland and Bermuda plus Caribbean tax havens. One of the authors of this research was quoted as saying: “Ireland solidifies its position as the #1 tax haven.”.
S. firms book more profits in Ireland than in China, Germany, France & Mexico combined. Irish tax rate: 5.7%.” Research identifies three main BEPS techniques used for "shifting" profits to a corporate tax haven via OECD–compliant BEPS tools: BEPS tools could not function if the corporate tax haven did not have a network of bilateral tax treaties that accept the haven’s BEPS tools, which "shift" the profits to the haven. Modern corporate tax havens, who are the main global BEPS hubs, have extensive networks of bilateral tax treaties; the U. K. is the leader with over 122, followed by the Netherlands with over 100. The blacklisting of a corporate tax haven is a serious event, why major BEPS hubs are OECD-compliant. Ireland was the first major corporate tax haven. An important academic study in July 2017 published in Nature, "Conduit and Sink OFCs", showed that the pressure to maintain OECD–compliance had split corporate–focused tax havens into two different classifications: Sink OFCs, which act as the terminus for BEPS flows, Conduit OFCs, which act as the conduit for flows from higher–tax locations to the Sink OFCs.
It was noted that the 5 major Conduit OFCs, Ireland, the Netherlands, the United Kingdom and Switzerland, all have a top–ten ranking in the 2018 Global Innovation Property Centre IP Index". Once profits are "shifted" to the corporate tax haven, additional tools are used to avoid paying headline tax rates in the haven; some of these tools are OCED–compliant, others became OECD–proscribed, while others have not attracted OECD attention. Because BEPS hubs need extensive bilateral tax tr
