Call to Action: ten recommendations for G20 countries

Call to Action: ten recommendations for G20 countries

Global financial cohesion is key to keeping the economy sustainable, transparent, and comprehensive

Ahead of the 2018 G20 Summit, The Global Accountancy Profession’s Call to Action for G20 Countries ten recommendations was released.

“There will always be challenges when working toward global policy coordination, but the benefits outweigh the difficulties in the long run,” Russell Guthrie, chief financial officer and executive director of external affairs for the International Federation of Accountants (IFAC) told Accountancy Age. “At IFAC, we’ve been studying the effect of fragmented regulation and public perspectives on global tax policies, for example, to inform our Call to Action and provide recommendations that will best advance global economic growth.”

The 2018 G20 Summit will be held Friday 30 November to Saturday 1 December in Buenos Aires, and there are already existent tensions between Presidents’ Donald Trump and Xi Jinping as the trade wars continue. From an accountancy perspective, however, the good news is that the UK tax system is still the second most effective in the G20 for ease of paying business taxes.

According to PwC, the average medium-sized UK business spends 105 hours filing tax returns – this is half the global average of 237 hours.

Despite providing one of the most efficient tax systems around the globe, the UK remains outside of the global top 20, PwC and The World Bank Group revealed in the latest Paying Taxes report. Based on medium-sized businesses, the UK tax system is ranked at number 23 out of the 190 global economies included. Hong Kong SAR has moved to first position, ahead of Qatar and the United Arab Emirates, whilst the US pre-tax reforms placed at number 37.

Kevin Nicholson, UK head of tax at PwC, said: “As Brexit approaches and technological developments continue apace, it has never been more important that UK businesses are able to engage with an effective and simple tax system. Less time spent on administrative tasks means more time spent on activity that brings the greatest value and increases productivity. Business can take comfort that the UK has retained its position as having one of the most effective tax systems in the G20 when it comes to the ease of paying taxes.”

The G20 recommendations released ahead of the summit next week focused on tax. “Tax is one area where we’ve seen a deep desire from citizens for their governments to pursue globally consistent practices,” Guthrie pointed out. “As you can imagine, the issue is complex, but ongoing dialogue is helping move toward more collaborative outcomes.”

Tax policies in the UK have been cited as unnecessarily complicated before; complicated legislation does also contribute to mistakes being made and businesses being punished by HMRC.

One area that has been in the public eye as a practice needing reform is auditing. When asked about what could be done to improve the current auditing system, Guthrie replied that “there is clearly great debate on audit at the moment, particularly in the UK, where top firms have put forward their own solutions to help create a more robust audit ecosystem. Our view is that limiting accounting firms to audit-only is not a viable solution and would result in inferior audit quality. Instead, we see introducing the right regulation and oversight and maintaining an ethical culture within the firms as a few key actions to improve audit quality.”

The difficulty is striking a balance between transparency through strict regulation and allowing businesses to continually creatively innovate in the face of global uncertainty. Too many controlling and over-complicated measures thus raises the likelihood of businesses basing themselves elsewhere. On the topic, Guthrie agreed that “regulation is very important but can have unintended consequences.”

Nicholson outlined that “while [the UK’s] tax system may continue to fair favourably from an administrative perspective, it is, however, far from perfect.” The main issue being the aforementioned complexities that make navigating tax policy far more difficult than it needs to be.

Guthrie added: “The key is to develop smarter regulation that is aligned across jurisdictions, considers implementation challenges, and minimises overall risk to the financial system. We see great transparency in regulatory conversations as not only beneficial, but necessary – open lines of communication between business, regulators, and other stakeholders is key to developing regulation that safeguards our global economy.”

Nicholson, when considering the Paying Taxes report, concluded: “Changing ways of working and doing business, technological advances, and a perceived disparity between the tax treatment of bricks and mortar businesses and those operating online have all highlighted the need to review a system that has not seen major reform since the 1980s.

“These factors, together with the expected start of a ripple effect from the US tax reforms, will be felt increasingly over the coming years. The importance of the UK being considered an attractive location for investment has never been greater, so now is the right time to take a step back and consider what is needed to ensure we have a tax system that is fit for the world that lies ahead.”

“Simple, coherent, well understood, and properly administered tax systems can help to lower the barriers for businesses to move from the informal to the formal sector,” Andrew Packman, leader for tax transparency and total tax contribution at PwC, added. “This can broaden the tax base and raise revenue without requiring new taxes. To do so, tax professionals and policy-makers need to have access to the correct skills and insight, which technology gains can help to support.”

The G20 Leaders’ Summit will plan to address issues beyond the ten recommendations released ahead of next week.

“The G20 has proven instrumental in addressing some of the most prominent challenges of the past decade, including the global financial crisis,” Guthrie told Accountancy Age. “As the economic and geopolitical context has evolved, G20 countries continue to play a crucial role in fostering institutions and governance models that can anticipate, respond to, and mitigate future crises. The G20’s influence on issues such as promoting sustainability, fighting corruption, and developing the future workforce continue to be relevant and respected on the global stage.”

One event that is, of course, going to have a widespread impact beyond the UK, will be Brexit. Guthrie said: “Due to Brexit, the UK faces an additional challenge in aligning global policy issues with national practices. In our research on taxation, we found that UK citizens think high-income earners and multinational companies don’t pay enough taxes and that tax minimisation for these entities is not appropriate. Reconciling public opinion with not only national policy, but also global efforts to collaborate on tax, may present a significant challenge in the UK.”

The ten recommendations for G20 countries – whilst they may not be law – will certainly help to concisely outline the expectations placed on the world’s leading economies. According to Guthrie, one of the most important actions for G20 countries in the global financial industry “lies in developing smarter regulation.” Considering the fact that IFAC research earlier this year revealed that fragmented financial regulations costs more than $780bn USB each year, minimising inconsistencies can only help things to improve, as well as nullifying future risk.

Guthrie concluded: “Fixing the fracture of fragmented regulation will be critical to a healthy and sustainable global financial industry.”

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