Multi-Sector Analysis for Base Erosion and Profit Shifting in Pakistan

Abstract

This study investigates financial ratios and its output with reference to Base Erosion and Profit Shifting Inclusive Framework of the Organization for Economic Cooperation and Development (OECD). There is unchecked tax elusive profiteering and revenue transactions in Pakistan where surveillance is an issue along with legal lacunas. Second issue is the shifting of profit to MNEs’ parent countries to avoid taxation in poor countries. OECD is of the opinion that, since the data available with the regulatory bodies in a country is not sufficient to ascertain the actual profits and transactions carried out, therefore it becomes difficult to calculate actual amount of profit that are to be taxes or are is shifted to low tax jurisdictions. In public finance, tax collection, national debt, expenditures, deficits and budgetary finance is worked upon. It is therefore important to view impact of BEPS on these aspects of public finance which leads to fiscal deficit, undue exemptions in national budgets, MNEs’ influenced & negotiated infrastructure expenditures and loss due to import-export disparity. In order to document volume and effects of BEPS and underlying issues inside Pakistan national and multinational entities must be investigated with the help of their audit reports and data available with various state institutions. Such a research has not been carried out as it is relatively newer topic of financial and tax administrators in Pakistan. Profits are being shifted from high tax jurisdictions to low tax jurisdiction which mainly affects developing countries. In addition to this the tax reliefs and exemptions are sought with weak governments of poor countries. Another aspect is of base erosion which tax is substantially reduced by the use of accounting and expenditures appropriation methods. This erodes the tax base inflicting massive loss to revenue collection in poor countries. Various national and international entities make use of number of available techniques to evade taxes. Pakistan has signed multilateral convention on the issue of BEPS and is in the process of compliance both in administration and legal domains to the International Convention. The issue is that Pakistan has not developed literature and expertise specific to the land. The companies and organizations are making use of tax gaps and legal lacunas to perpetrate BEPS which is directly affecting various aspects of Public finance which chiefly includes taxation and expenditures in budget. Less research has been conducted in the area with reference to Pakistan and a comprehensive work is required to address various questions important for need of tax makers in Pakistan. This thesis is first work in Pakistan which studies financial ratios’ use for crime indicators and as well as analysis various ratios for indication of tax risk posed by foreign Multinational Entities working in Pakistan.