TAX AVOIDANCE and evasion is a problem. It’s an issue that has been on the agenda for tax authorities the world over, now even more so in the wake of the Panama Papers scandal.
Experts have debated what can be done to remedy the situation. Should corporation tax be scrapped? Does there need to be more disclosure facilities for tax avoiders? Is greater transparency between international tax authorities needed?
Policymakers, in particular European legislators, have been working hard to counter the widespreadand murky tax activities uncovered by the Mossack Fonseca leak.
The European Commission has made a ‘small, but important step’ towards greater tax transparency, forcing multinational corporations with a turnover greater than €750m (£599m) to reveal to EU member states where they make profits and pay their taxes.
But does this announcement go far enough in tackling avoidance, and if not, how much further can the EC go in its battle against tax avoidance?
Some believe that country-by-country reporting is a move in the right direction to ensuring that European multinationals pay their fair share of tax, but others feel that the Commission isn’t going far enough.
With chancellor George Osborne announcing a collaboration with four of Europe’s largest economies on automatically sharing information on the ultimate owners of companies, the pressure will be on the European Commission to ensure that it’s keeping pace with other tax authorities.
Here are five ways that the European authority can go further to tackle tax avoidance:
Gain access to the Panama Papers
This is an obvious measure to take, seeing that multiple tax authorities, including HMRC, have already requested access to the 11.5 million leaked Mossack Fonseca documents, but the Commission are still yet to do so.
The pressure will be on for the Commission to request access to the papers, especially now the European Parliament Conference of Presidents has set up an inquiry committee to investigate the leaked documents.
Chas Roy-Chowdhury, head of taxation at the ACCA suggests that Jean-Claude Juncker and Co should use the documents, if they have legitimate evidence of tax avoidance, to form a taskforce similar to HMRC’s.
“The EC should be looking at the documentation before putting something out there [referring to the country-by-country announcement], even if that means taking longer to put proposals or an initial draft out there. They should thoroughly look through the Panama Papers and augment these proposals as necessary.”
— European Commission (@EU_Commission) April 12, 2016
Collaborate with global tax authorities
To fight widespread tax avoidance, nation’s from across the globe will have to come together to combat it as one, rather than implementing individual pieces of legislation that can be stepped over by multinationals.
Chowdhury believes that the EC have to take a leaf out of the OECD’s book and work with authorities both inside and outside of the European Union.
“The OECD’s the Joint International Tax Shelter Information and Collaboration (JITSIC) network, which includes 35 global tax authorities, have met in Paris this week to discuss the Panama Papers and what they can do about it,” explained Chowdhury.
“This is probably the right way of doing it [tackling avoidance]; it’s what the EC should be doing as well.”
JITSIC is not the only organisation that the EC should be taking note from the.
In January, 31 countries signed the OECD’s Multilateral Competent Authority Agreement (MCAA), which enables the sharing of country-by-country reports, an agreement which was seen by many as a major step forward towards the implementation of its BEPS initiative.
Concentrate on getting BEPS implemented
As well as implementing new initiatives to counter tax avoidance, experts believe the Commission should use its efforts to ensure that the OECD and it’s BEPS initiative can become as assertive in the tax world as it aims to be.
The time to throw its support around the action-plan is now, especially as some experts believe Google’s £130m settlement with HMRC significantly undermines BEPS.
“ICAS is of the view that the best way to address tax avoidance is with a level playing field and so to do this in the EU, and more widely in the international arena, everyone should concentrate on getting BEPS implemented,” commented Charlotte Barbour, director of taxation at ICAS.
“Consequently, any suggestion for the EU should be that it push member states towards consistent and prompt implementation of the OECD BEPS proposals. Public country-by-country reporting of course could help to demonstrate progress on tackling BEPS,” continued Barbour.
Improving European disclosure facilities
Cathy Corns, tax partner at Mercer and Hole, believes the European Commission could extend the disclosure rules to cover nations throughout the EU.
“If, for example a company has been lax in disclosing in its French corporation tax return an automatic notice would be sent to all other relevant taxing authorities on a group wide basis and each jurisdiction would then have the ability to open inquiries.”
The need to improve disclosure facilities is high, with some experts believing that following the Panama Papers leak and the expiration of the LDF, tax avoiders in the UK may be too scared to voluntarily disclose their tax liabilities.
Reduce the €750m threshold
According to Tax Research UK, the €750m threshold would mean that 85-90% of the world’s companies will not have to report.
This rule could, according to one tax investigator, cause the EC problems down the line when they have to assess whether its announcement has made a dent in Europe’s tax avoidance problems.
“It is likely that companies with lower turnover figures are also able to engage in aggressive tax planning through the use of marketed tax arrangements,” said Rebecca Busfield, partner at Watt Busfield Tax Investigations.
“The EC want to avoid unnecessary administrative burdens on smaller players, however it is likely that this information is already readily available internally for the management teams.” added Busfield, highlighting that it could be possible for the EC to lower its €750m threshold.
Tallat Mahmood appointed to corporate finance team of Top 20 firm
Andrew Tyrie airs views on the Finance Bill, 'Making Tax Policy Better' report, and Brexit
Senior partner David Elliott has been appointed in KPMG’s Newcastle office
Drastically fewer offices for HMRC in the hope to reduce their running costs