Page 110 - Special Topic Session (STS) - Volume 4

STS570 Nadim Ahmad et al.
The emergence of legal and organisational
arrangements to minimise global tax burden, and
its impact on monitoring domestic economic
1
activities
Nadim Ahmad and Peter van de Ven
Organisation for Economic Co-operation and Development (OECD)

Abstract
Multinational enterprises (MNEs) move profits around the globe with,
amongst others, the goal of minimizing their global tax burden. The potential
to set up legal and organisational constructs for this purpose has grown
tremendously with the increasing role of intangible assets in generating value
added. Special Purpose Entities, in essence brass plate companies with hardly
any physical presence, are being set up to charge fees for the use of intangible
assets whose legal ownership has been transferred to these units.
Digitalisation has further aggravated these problems to a significant degree.
But it should be added that not only intangible assets, also other movable
assets, such as transport equipment, lend themselves for setting up constructs,
e.g. operational leasing agencies, to benefit from favourable tax conditions in
some countries. Moreover, rock bands, football players and other wealthy
persons create similar constructs to avoid or to minimize tax payments. The
paper will discuss the impact these phenomena have on the accounting of
economic activities of a country, as summarised in for example GDP-numbers
and balance of payments. It will also propose some alternative ways of dealing
with these issues.

Keywords
Multinational enterprises; national accounts; profit shifting; Special Purpose
Entities; taxes

1. Introduction
1. Increased globalisation — through increased international trade, capital
flows, and the growth of multinational enterprises — is one of the most
important developments affecting the world economy during the last 25 years.
Globalisation grew rapidly over this period, especially during the 15 years
leading up to the 2007–2009 economic and financial crisis. Total world trade
in goods and services, for example, increased from 41 percent of world GDP
in 1993 to 61 percent in 2008, before dropping during the recession and then
afterwards rebounding. The growth of foreign direct investment was perhaps
even more dramatic. Global competition and the deepening of global supply
chains have transformed many industries and led to profound economic

1 For an important part, this paper is an excerpt from Moulton and Van de Ven (2018).
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