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Friday, March 9, 2012

Aggressive Tax Planning on the Rise, Says OECD

"Aggressive tax planning," which I would characterize as  exploitation of tax differences between countries that sits on the edge of legal tax avoidance and illegal tax evasion, is on the rise among corporations, according to a new report by the Organization for Economic Cooperation and Development (via Reuters and Reuters Tax Break).

The OECD report notably states that "concerns about distortions caused by double taxation also apply to double non-taxation." It points to practices such as deducting the same expense in multiple countries and generating multiple tax credits for the same tax payment as ways to make income "disappear." As Palan et al. (2010) have argued, corporations largely don't care whether their practices are deemed legal or not, If they get away with it, great; if not, well, paying fines is just a cost of doing business. Clearly on net this aggression has saved more in taxes than it costs in fines, if such behavior is actually increasing, as the OECD says.

Bear in mind, too, that whether the transactions are technically legal or illegal, their effect in reducing the corporate tax burden and passing it on to other taxpayers is the same.

Confirming what I have written here before that untold billions are at stake, the new OECD report gives examples of billion-plus settlements of such tax disputes. One involved four New Zealand banks that had to pay the government NZD 2.2 billion (i.e., an average of NZD 550 million per bank), a dozen Italian cases settling for 1.5 billion euro, and, largest of all, eleven tax credit transactions in the U.S. "evaded" (OECD's term) $3.5 billion in taxes owed to the government. The OECD did not make an estimate of the total cost of corporate tax planning, though the Tax Justice Network has estimated worldwide tax evasion to be $3.1 trillion annually.

The report recommends that countries introduce new laws and regulations to deal with abusive linked transactions, share information among governments, and initiate new disclosure requirements for firms to catch these transactions. While this is a step in the right direction, the OECD proposals are not very specific. Forcing companies to publish country-by-country instead of consolidated accounts would make clear what transfer pricing abuses they are perpetrating and make it politically more feasible to address them.

Sunday, March 4, 2012

Swiss Bank Secrecy Reform

 Reprinted by permission of Mark Morris, h/t Tax Research UK.

The Travails of People with Health Insurance Are Not Trivial!

Austin Carroll at The Incidental Economist has posted what is at least the third installment of his saga to keep getting medication for a chronic condition. This is an excellent reminder that American health care does not just let down the 49.9 million uninsured, but fails those who have health insurance, too.

By way of background, it is important to note that Carroll is not just an expert on health care policy and IT, he is also a physician. He is, of course, insured by his employer, Indiana University. And it is there that this installment of his story begins:
Indiana University, in its infinite wisdom, changed the health care plans for the gazillionth time on January 1. This means that the laboratory I used to have to go to (which is NOT an IU [Indiana University - KT] lab – crazy) is no longer covered. So I needed to search for a new lab that would qualify as in-network. Of course, that meant that the standing order I had at the old lab needed to be reissued. So I had to call my doctor and wait for them to get me a new prescription for my labs. That took a few tries, because they couldn’t understand why I needed a new prescription. But, eventually, I got it.
 End of story? Hardly. His insurance had tripled in price, he had to get a new pharmacy, he had to navigate a labyrinthine website to request a new prescription from his doctor, only to find that the links were broken!

For those keeping score at home, none of the expense of working one's way through the bureaucracy of health insurance is counted as an expense when you see data on how much the United States spends on health care.

Is this an isolated story? Ask the approximately 6 million people who had to change pharmacies in January because Express Scripts and Walgreens couldn't reach agreement on reimbursement rates. My father, a military retiree on Tricare, was one of them. I was another one. I complained to the benefits people at University of Missouri-St. Louis that this would be horribly inconvenient to people like me who need to fill prescriptions in multiple parts of the country and benefit from Walgreens' nationwide reach. Of course this was in vain. Express Scripts is headquartered literally on my campus. The building next to mine is now Express Scripts Hall. The University of Missouri will never get rid of Express Scripts as its prescription benefits manager.

Having health insurance in America doesn't guarantee you access to health care (you have seen "Sicko," haven't you?), it doesn't deliver low costs, and it certainly throws up new kinds of bureaucratic roadblocks on a daily basis. As Carroll says, there is no way we have the best health care system in the world. Even Reason magazine editor-in-chief Matt Welch is convinced in practice, if not in theory (h/t to commenter Steve on Carroll's post).