José Antonio Ocampo
This week, Project Syndicate catches up with José Antonio Ocampo, a professor at Columbia University, a board member of Colombia’s central bank, and Chair of the UN’s Committee for Development Policy.
Project Syndicate: You’ve praised the OECD’s framework for addressing base erosion and profit shifting (BEPS), including its most recent initiative, which aims to create a corporate tax system that is “fit for the digital economy.” But you’ve also made clear that the BEPS framework isn’t anywhere near enough. What do you think of the recent OECD proposal for taxing the digital economy? In lieu of unitary taxation of multinationals – the ultimate goal – which changes are most urgently needed?
José Antonio Ocampo: My major argument – backed by the Independent Commission for the Reform of International Corporate Taxation (ICRICT), which I chair – is that multinationals should be taxed as single firms, based on their worldwide operations. Under a system of formulary or fractional apportionment, the firm’s overall (or unitary) taxable profits would be divided among the jurisdictions in which it operates, based on objective criteria (such as sales, employment, and digital users), with each jurisdiction then applying its own tax rate. Some federal countries, including the United States, already employ such an approach.
The recent OECD proposal includes, for the first time, a fractional apportionment scheme. It also recognizes the need for companies to pay taxes not only in jurisdictions where they have a physical permanent establishment, but anywhere where they have “sustained and significant involvement.” That presence would be defined, most simply, by a revenue threshold (adapted to the market’s size).
But there are three major problems with the proposal. First, the apportionment scheme would include only “residual profits” – thus excluding basic (“routine”) profits – even though all of multinationals’ profits are ultimately based on their worldwide operations.
We hope you're enjoying Project Syndicate.
To continue reading, subscribe now.
Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.
Already have an account or want to create one to read two commentaries for free? Log in
We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Ocampo's picks:
by Keun Lee
One of Korea’s top economists offers a brilliant analysis of the “detours” that low- and middle-income countries can take to accelerate growth, combining economic theory with his own deep knowledge of East Asia’s development, including the performance of highly successful firms.
by Richard Haass
A PS contributor and the president of the Council of Foreign Relations examines how the post-World War II international order has broken down, delivering a particularly rich analysis of the major changes and challenges generated by US foreign policy.
by Guillermo Perry
The personal memoir of one of Colombia’s most important economists, who recently passed away, this book reflects Perry’s deep knowledge of major episodes in Colombia’s economic history since the 1960s – many of which he participated in. It’s an invaluable read for anyone interested in Colombian economics and politics.
From the PS Archive
Ocampo explained why gradualism is no longer an option in the fight against global warming. Read the commentary.
Ocampo made the case for increasing the use of SDRs and ending the US dollar’s dominant role in the global monetary system. Read the commentary.
Around the web
In a 2014 interview, Ocampo described the damage that tax havens cause – and how to shut them down. Read the transcript.
In a 2016 speech, Ocampo identified opportunities for countries and businesses engaging with the developing world. Watch the video.