ACCOUNTANTS and tax advisers have lauded the OECD efforts in producing today’s final recommendations in curbing tax Base Erosion and Profit Shifting (BEPS), but concerns persist about the implementation of the measures.
The package includes new minimum standards on country-by-country reporting, which for the first time will give tax administrations a global picture of the operations of multinational enterprises; treaty shopping, to put an end to the use of conduit companies to channel investments; curbing harmful tax practices, in particular in the area of intellectual property and through automatic exchange of tax rulings; and effective mutual agreement procedures, to ensure that the fight against double non-taxation does not result in double taxation.
It also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called “cash box” entities to shelter profits in low or no-tax jurisdictions, and redefines the key concept of permanent establishment, to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.
Companies including Google, Amazon and Starbucks have been in the firing line for their use of offshore jurisdictions to drive down their UK tax liabilities in recent years.
In particular, the companies used transfer pricing, which some claim had the effect of mitigating their liabilities.
The method saw multinational corporations value and purchase goods and services moving across international borders from one of the group’s corporate entities to another. An ‘arm’s length’ principle is usually applied to ensure the transaction is made at market value, but there have been questions raised over whether all companies do so in practice.
The OECD will present the BEPS measures to G20 finance ministers during the meeting hosted by Turkish deputy prime minister Cevdet Yilmaz later this week in the Peruvian capital Lima.
Grant Thornton tax partner Wendy Nicholls said the organisation deserves “much credit” for the inroads it has made against tax leakage over the past two years, but warned there is “much work to be done over the next months and years, and a lot will depend on implementation – or otherwise – by countries themselves”.
PwC international tax partner Stella Amiss was more fulsome in her praise, claiming the reforms “achieve far more consensus and progress than many expected when the OECD’s action plan was first announced”.
“Most multinationals are likely to be affected in some way. International businesses will need to look at the way their operations and investments are financed, and may face additional withholding taxes or find it harder to access particular tax treaties,” she said.
Despite that enthusiasm, Oxford University Centre for Business Taxation, Saïd Business School professor Michael Devereaux and associate professor John Vella claimed BEPS would fail to solve the major problems afflicting the international tax system.
In particular, they said the project attempts to address loopholes in the existing system without identifying its fundamental problems, and does little to address competition between governments.
ActionAid tax policy advisor Anders Dahlbeck went further, suggesting BEPS was a deal “cooked up by a club of rich countries and fails to properly tackle tax avoidance by large multinationals”.
“Every year developing countries lose an estimated $200bn (£1.47bn) a year to corporate tax avoidance. Healthcare, schools and other key public services are left starved of resources.
“By ducking the tough issues political leaders have let down the world’s poorest countries.”
Richard Le Tocq, head of Locate Guernsey, discusses the chancellor’s approach to high net worth individuals, and why relocation is increasingly attractive to HNWIs
MTD represents 'the single most significant change to the UK’s system of taxation in recent times', says Knill James partner Nick Rawson. So, how prepared are SMEs for digital tax reporting?
The firm says that the U-turn 'does not alter the need for a fundamental review of the way we tax work' and that the current tax system is in need of reform
Legislation on the NICs changes to be brought forward in the autumn following publication of 'the full effects of the changes to Class 2 and Class 4' in the summer