Page 9 - Working Paper (Measuring BEPS and Its Countermeasures in Indonesia: A Preliminary Research Guide)

DDTC Working Paper 1717
9

• Level of detail – As BEPS behaviors involve between countries, complexity would arise when
cross-border transactions, typically between incorporating such occassion into the model.
related parties, information on related and
unrelated party transactions should be used Secondly, from technical perspective,
when available. Affiliate-level information determining the type of data – cross-section,
should supplement worldwide consolidated time-series, or panel data – would have each
group information when available. consequence in having appropriate model.
Afterwards, selecting appropriate samples to be
• Timeliness – The provision of most updated
used in the measurement would be another issue.
data enables policymakers to monitor and
In every option, researchers have to identify each
evaluate the changes in the BEPS environment
limitation and recognize how it affect the reliability
and the effects of legislation. If the time lag
of the estimation result. Thirdly, regarding
is too long, empirical analysis may be more
data provision, it would define how far BEPS
of an historical assessment, thus not giving
measurement could develop and inform policy
substantial benefit for current necessary action
makers to formulate effective countermeasures
to counter the practice.
(assessment on data provision in Indonesia will be
• Access – The extent to which access to data provided in later section).
is provided to statisticians and economist
within government, and potentially outside of Nevertheless, in terms current practicability,
government, with strict confidentiality rules, there are several methodologies that can be used to
represents would bring advancement to the measure the magnitude of BEPS. In general, we can
development of BEPS measurement progress. differentiate it into two broad approaches: macro
and micro approach. The former view BEPS from
Table 1 depicts the OECD’s assessment on the general outlook, or in aggregate basis, through
practicality of several type of data that can be which the measurement produce aggregate result;
utilized to measure the magnitude of BEPS. the latter takes stand point of view from corporate
4.3. Methodology Options for Measuring BEPS level, thus more of examining the reported profit
changes and financial decision behavior.
In measuring BEPS in one particular country,
This section reviews both approach and
it is difficult to produce robust and reliable result
examines each strong elements and handicaps in
due to three points of view. First, from substantive
measuring BEPS.
point of view, it is problematic in relating the factors
incentivizing BEPS, its pattern and the schemes 4.3.1. Macroeconomic Approach
channeling the profit shifting with the selection
of dependent variables into an estimation model. In measuring the overall impact of BEPS,
Besides tax rate difference, it is quite challenging to macro approach gives holistic idea on how big the
incorporate other determinants into the model. For magnitude. The major indicators that could be used
instance, in the case of hybrid financial instrument to represent BEPS activity include current account,
that occurred due to the mismatch in tax system trade data, FDI, or CIT revenue. These variables,

Table 1. OECD’s Overview on Several Data Sources

Type of Data Review
National Accounts (NA) It measures the economic activity in a country and includes variable such as
operating surplus, which may be used in BEPS analysis. It is easily accessible
from international organizations, such as the OECD and the IMF. However,
the underlying information used to construct the data itself tainted by BEPS
behaviors – meaning that even widely used measures such as GDP will be
distorted by a BEPS component that is difficult to disentangle. There are
significant definitional differences between National Accounts and tax data.
Macro Data Balance of Payment (BOP) BOP statistics include all monetary transactions between a country

and the rest of the world, including payments for exports and imports of
goods, services, financial capital and financial transfers. This encompasses
information on flows widely used to shift profits, such as purchases and sales
of trading stocks and services, royalties and interest. The data is accessible
from Ministry of Trade or World Bank and IMF, but they do not distinguish
between transactions respecting the arm’s length principle and manipulated
transactions.