The OECD’s Conquest of the United States: Understanding the Costs and Consequences of the BEPS Project and Tax Harmonization

The system for international corporate income taxation is at risk of losing its most valuable feature—diversity and competition. The Base Erosion and Profit Shifting (BEPS) Project of the Organisation for Economic Co-operation and Development (OECD) attempts to change the international tax system by transferring control of corporate taxation from individual nations to an international body. This shift favors consolidated and uniform tax rules but sacrifices compliance efficiency, taxpayer rights, and nations’ ability to set the tax policies best suited to their populations.

The BEPS Project is intended to simplify and coordinate tax reporting, increase tax transparency, and increase corporate tax revenue by closing loopholes. However, the BEPS Project’s proposal to further centralize the control of taxation would infringe on national sovereignty and taxpayer rights and impose onerous and costly compliance requirements—and would likely fail to meaningfully increase corporate tax revenues.

Ideally, the United States should abandon corporate taxation altogether because it is inefficient and discourages the corporate investment that produces economic growth. Such a shift is probably not politically viable in the short term. However, second-best reforms to the US corporate tax system include ending worldwide taxation and moving toward a territorial tax system, allowing full and immediate expensing of business investments, and lowering the corporate tax rate, which is currently the highest in the OECD.

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