Head of South Africa’s Revenue Service and chair of the OECD Global Forum on Transparency and Exchange of Information (Global Forum), Kosie Louw, speaking following the release of 11 new reports on the adequacy of the assessed countries information exchange in practice; and two Phase 1 reports on the adequacy of the legal and regulatory framework of for transparency and exchange of information, had this to say:
“The Global Forum is applying pressure on all jurisdictions to implement the standard and co-operate effectively in tax information exchange. The publication of the ratings later this year will be a crucial moment for all those committed to fighting cross-border tax evasion”
According to information on the OECD website, the Global Forum has reviewed 98 jurisdictions of which 50 will be assigned ratings in November for the individual elements of the international standard and an overall rating of compliant, largely compliant, partially compliant or non-compliant.”
The creation of the list was mandated by the G20 at meetings of its finance ministers and central bank governors. Moreover they also made the strong recommendation that countries sign on to or express an interest in the OECD’s Model Convention on Mutual Assistance in Tax Matters which in effect binds signatories to a new standard of information exchange based on automaticity.
It will be interesting to see how the ratings of the 50 countries will be affected by their acceptance (or otherwise) of the new standard expressed through signing up to the OECD Multilateral Convention.
Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services.
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U.S Liechtenstein Tax Evasion Probe Nets $23.8 Million
FATCA: A Simple Premise Gone Horribly Wrong
Profit Shifting a Race to Top Not Bottom of Economic Prosperity
Britain Is Slamming Its Doors Against the World
UK Should Adopt Unilateral Approach to Tax Avoidance
‘Fabulous Fab‘ Found Liable for Fraud
Australia to Introduce a Bank Levy on Deposits
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bEPS, destination-based-cash-flow, G20, G8, HM Revenue & Customs, House of Lords, Member of Parliament, Multinational corporation, OECD, Organisation for Economic Co-operation and Development, Tax, Treasury
The House of Lords Economic Affairs Select Committee has added its voice to the global debate on tackling tax avoidance.
Almost a week after the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) was endorsed by the G20 Finance and Central Bank Governors, the Select Committee has yesterday published its views on what the UK should do differently to deal with corporate and individual tax avoidance.
The following six recommendations from the report are instructive:
- Parliament should establish a joint committee, made up of MPs and Peers, to exercise greater parliamentary oversight of HMRC and the settlements it reaches with multinationals.
- The Treasury should urgently review the UK’s corporate tax regime and report back within a year with proposed changes to be made in the UK and pursued internationally, especially through the OECD.
- As part of the Treasury’s work on the OECD’s BEPS plan, the Committee recommends consideration of other approaches to the taxation of multinational companies, such as a destination-based cash-flow tax.
- The Treasury should review some of the fundamentals of the UK’s corporation tax regime, including the differential tax treatment of debt and equity and the scope for introduction of an allowance for corporate equity.
- In addition to current government plans, such as the naming and shaming of promoters of tax avoidance schemes and the self-certification of tax compliance by companies bidding for public contracts, the Committee recommends:
i. the regulation of tax advisers
ii. measures to penalise users of failed tax avoidance scheme;
iii. a requirement on companies to publish a summary of their corporation tax returns, in the interests of greater transparency.
- HMRC should be better resourced to deal effectively with the tax affairs of multinationals.
While the final design of the OECD BEPS Plan may be at least two years away it is prudent to be concerned about any plans to fast-track a UK solution to international tax problems.
Certainly the House of Lords report is the beginning of a very long journey to reaching agreement on exactly what can and should be done to reform international tax policy and regulation.
The debate continues…
Convention on mutual administrative assistance in tax matters, Exchange of information, G20, G8 BEPS, Global Forum, Mutual Administrative Assistance in Tax Matters, OECD, Organisation for Economic Co-operation and Development, Tax
The 120 members of the OECD Global Forum on Tax and Exchange of Information for Tax Purposes (‘Global Forum’), should not make the mistake of assuming that because the OECD’s Progress Report to the G20 Finance Ministers and Central Bank Governors (‘G20′) was not as widely publicised as the group’s endorsement of the OECD’s Action Plan on Base Erosion and Profits Shifting (BEPS),important pronouncements on the future of the Global Forum’s work did not feature in the G20’s final communiqué.
Here’s what they said:
1. “We fully endorse the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information. We are committed to automatic exchange of information as the new, global standard and we fully support the OECD work with G20 countries aimed at setting such a new single global standard for automatic exchange of information.”
COMMENT: No surprise here; except perhaps to the Global Forum who for almost five years have been working on implementing the ‘on request’ standard through the conclusion of almost 800 bilateral tax information exchange agreements (TIEAs); as well as a number of tax treaties. This after a similar declaration made by the G20 at the end of their London Summit of the group’s endorsement of the OECD proposal that this should be the new ‘global’ standard.
To be fair members of the Global Forum should not be surprised by the modus operandi of the OECD in these matters. Of course one might have thought that with the existence of a re-constituted Global Forum , of which the OECD serves as Secretariat the OECD would have at least canvassed the views of the Global Forum on this new direction so that their report to the G20 would reflect their shared intent (or otherwise) on the move this new standard.
This lack of consultation by the OECD suggests that the role of the Global Forum is merely that of standard taker regardless of the characterisation of relationship between the two bodies. More importantly, it reinforces the widely held view that the OECD remains uninterested in the views of the non-G20 members of the Global Forum; and is content to rely on the G20 as the ‘enforcer’ of its global tax policy-making.
2. “We ask the OECD to prepare a progress report by our next meeting, including a timeline for completing this work in 2014. We call on all jurisdictions to commit to implement this standard. We are committed to making automatic exchange of information attainable by all countries, including low-income countries, and will seek to provide capacity building support for them.”
COMMENT: The aggressive time-frame for the OECD to complete work on automatic exchange of information (AIE) suggests that the plan is already at an advanced stage; and should confirm that the ‘on request’ standard was but an ‘interim’ one until the OECD could gain G20 endorsement of their ultimate ambition -universal adoption of the AIE standard using their Multilateral Convention on Mutual Assistance in Tax Matters. No doubt the success of the OECD/G20 partnership in compelling acceptance of the OECD’s model TIEA by the Global Forum has provided impetus for the move to the OECD’s ‘end game’.
3. “We call on all countries to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters without further delay. We look forward to the practical and full implementation of the new standard on a global scale.”
COMMENT: Except for the more insistent tone, this should not be a surprise to the Global Forum. The OECD’s Report to the G8 meeting last month referenced a similar exhortation by the G20 made at the end of the April meeting of its Finance Ministers and Central Bank Governors:
“In view of the next G20 Summit, we also strongly encourage all jurisdictions to sign or express interest in signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on progress.
Signatories to the OECD Multilateral Convention are: Albania, Argentina, Australia, Austria, Belgium, Belize, Brazil, Canada, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Ghana, Greece, Guatemala, Iceland, India, Indonesia, Ireland, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Nigeria, Norway, Poland, Portugal, Romania, Russian Federation, Saudia Arabia, Singapore, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, United Kingdom, and United States.
For the status of the Convention as of June 13, 2013 click here
4. “We are looking forward to the Global Forum establishing a mechanism to monitor and review the implementation of the global standard on automatic exchange of information.”
COMMENT : The G20 reinforces the view that the Global Forum has no say on the content or adoption of standards in the area transparency and tax information exchange; suggesting that by mere membership jurisdictions commit to the adoption and implementation of international tax rules crafted by the OECD and ratified by the G20. The clear mandate to the Global Forum is to ensure that its members are compliant. That the G20 members of the Global Forum are in the minority has little bearing on the matter.
(Prime Minister of Australia Kevin Rudd. Image: Zimbio)
5. “The Global Forum is to achieve the allocation of overall ratings regarding the effective implementation of information exchange upon request at its November meeting and report to us at our first meeting in 2014.”
COMMENT: This reinforces my view that by year end the OECD will have crafted a new blacklist of Global Forum members based on the Phase 2 Assessments which measures the ‘effectiveness’ of the practical implementation of the ‘on request’ standard.
In its April communigue the G20 had this to say:
“Moreover, we are looking forward to overall ratings to be allocated by year end to jurisdictions reviewed on their effective practice of information exchange and monitoring to be made on a continuous basis. In view of the next G20 Summit, we also strongly encourage all jurisdictions to sign or express interest in signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on progress.
Australia takes over as chair of the G20 in 2014 and Heads of Government Summit is to be held between November 15-16.
Full Communique of G20 Meeting released Saturday July 20,2013 here: Final_Communique_FM_July_ENG
Highlights from the Communique adopted by the G20 Finance Ministers and Central Bank Governors at the end of their meeting held today in St. Petersburg Russia:
- A crackdown on tax regimes found to have too soft an approach to multinationals deploying overseas finance subsidiaries through establishing a new international benchmark for appropriate taxation of controlled foreign companies.
- New mechanisms to fast-track the introduction of OECD recommendations rapidly around the world. And a new approach to measuring the extent to which national tax coffers are being drained by multinationals artificially shifting their profits internationally to lower their tax bills.
- Wider measures to combat predatory tax competition policies emerging in some financially stretched countries, risking a “race to the bottom” climate on tax. The UK’s new so-called “patent box” tax break for intellectual property companies will come under scrutiny.
- A raft of treaty updates to neutralise the tax advantages of complex financial instruments, schemes and structures, including hybrid capital, interest payment deductions and over-capitalisation.
- Tougher rules to block transfers of high-value and mobile “intangible” assets, such as brands and intellectual property rights, to tax havens where there is little or no associated business activity.
- On-line multinationals with extensive warehouse operations in an overseas country, such as Amazon, to be required to pay local tax on any profits arising from sales in that country.
- Multinationals to be forced to disclose to every tax authority a country-by-country breakdown of profits, sales, tax and other measures of economic activity such as headcount.
- A requirement on multinationals to disclose the most aggressive “tax planning” structures to the authorities otherwise often relying on limited, local data that does not show the impact of transnational schemes to lower tax.
It is expected that the full slate of OECD anti-tax haven initiatives will be tabled and adopted by the G20 Heads of Government at their 2013 Summit between September 5-6.
Is Canada legislating ‘tax fairness? If so, for whom?
Here’s a list of some proposed changes about which the Canadian government has invited consultations until September 13; a week after this year’s G20 summit takes place in St. Petersburg Russia.
- A new regime for Canadian foreign affiliates to guarantee an appropriate income inclusion for “stub-year foreign accrual property income” on dispositions of foreign affiliate shares;
- Proper enforcement of “exempt surplus” rules in the case of certain trusts resident in Canada, in which a controlled foreign affiliate has a beneficial interest;
- Changes to the country’s base-erosion rules, and the suitable application of the rules relating to structures that include partnerships;
- Overhaul of the circumstances when taxpayer information can be used by government officials to alert law enforcement organizations as evidence of the commission of a serious crime, such as money laundering or terrorism financing; and
- Reforms to the system for determining the residence of international shipping corporations.
(Canadian Prime Minister Stephen Harper. Image: Huffington Post)
As you mull this over consider this example of a ‘fairness’ driven tax reform agenda by a Canadian-based lobby:
- Broaden the income tax base to reflect the individual’s actual command over resources.
- Rationalize tax expenditures.
- Increase top marginal income tax rates.
- Stop the corporate tax “race to the bottom”.
- Use consumption taxes cautiously.
- Implement a basic or guaranteed income.
Now where do you stand?
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Emotive stuff right?
Here’s what I think
Tax avoidance is not a moral issue; it is an issue of competitiveness.
On the other hand, tax evasion crosses that imaginary line in the sand between what are acceptable tax savings and what is tantamount to stealing from the society in which the tax-payer is resident.
That’s why it is illegal.
From this perspective, a company’s ‘fair share of taxes‘ is what it pays after the application of all lawful means, including tax avoidance but excluding tax evasion, of reducing its overall tax liability.
Since the payment of tax for most people is a legal and not moral obligation, a company’s obligation to pay its fair share of taxes must be set by law and not morality.
A company is a legal construct and governed by legislation not conscience. It is for this reason that acceptable company behaviour is compelled by law – reinforced by sanction – and not by reference to some inherent moral compass.
Why should the determination of a company’s fair share of taxes be any different?
Tax avoidance is not illegal nor is it a question of immorality because its availability is necessary to enhance a country’s competitiveness in its quest to attract foreign and mobilize local investment.
If this were not the case it would be far easier for law-makers to ban tax avoidance of any kind especially if their competitors did likewise. They are however reluctant to do because they are constrained by the dictates of a ‘free market’ economy premised on specialisation and the unencumbered movement of goods, services and capital across national borders.
Moreover, un-competitiveness has implications for national development and is inextricably linked to the quality of life of a country’s people.
That said, ‘aggressive’ tax avoidance is gradually being accepted as unlawful. However, without the universal, or near universal, acceptance of aggressive tax avoidance as illegal the competitiveness of those countries that ban it will be adversely affected when compared to those for which no legal sanction attaches.
So why are countries still not keen to prohibit all forms of tax avoidance?
Because they are an important means of attracting and retaining investment. Investment which provides jobs, creates infrastructure, generates foreign exchange, pays for social and other public services, drives down the cost of consumer items and contributes to government’s revenues; enabling it to execute the domestic, regional and foreign policies expected by the electorate.
What do you think?
Your summary of the biggest tax, trade and investment headlines affecting International Business and Financial Services.
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No Reciprocity by US Under FATCA
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France Urges Lebanon to Sign TIEA to Avoid Blacklisting
UNCTAD Makes Offshore Recommendations
Irish MPs Abandon Grilling of Apple and Google on Their Tax Affairs
Germany Adopts US FATCA IGA; Rejects Tax Transparency
Belgium to Impose a ‘Fairness Tax‘ on Large Corporations
IRS To Review Tax Laws in Light of US Court Decision on DOMA
British MPs Reminded that Corporation Tax is a Tax on Profits Not Sales
Record Number of New Company Formations in Hong Kong
Swiss Bankers Categorically Reject New FATF Rules on Disclosure
UK Proposes Reciprocal FATCA-Style Agreements with its OFCs
FATCA May Not Be a ‘Slam Dunk’ After All.
Is the United Nations Interested in Tax Evasion and Transparency?
FATCA is D.O.A: US Can’t Reciprocate Automatic Exchange of Information
UN Handbook on the Negotiation of Tax Treaties
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