Base Erosion and Profit Shifting (BEPS)
Are we in danger of seeing the wheels fall off the BEPS vehicle? If multilateralism is supposed to the be lynchpin holding the whole thing together then some members of the international community, intentionally or not, seem to be doing their best to pull it out. And the danger is that the wheels could go careering off in different directions, which surely helps nobody.
The European Union is one party in an awful hurry to find solutions to the riddle of the digital economy. Indeed, EU Competition Commissioner Margrethe Vestager more or less threatened to wrest the digital taxation project from the OECD last week, when she said that the Commission would publish its own proposals for more effective taxation of the digital economy early next year if the OECD hadn’t got its act together by then.
Some would applaud the European Commission for … Read More »
It’s been an interesting few days for the European Union, or more specifically its executive arm, the European Commission.
First came the announcement of a screening framework for FDI. This is intended to shine a light on the more shadowy sources of foreign investment into the EU. It’s quite ironic really; after all, the European Commission is hardly the most democratic and transparent of governmental organizations. More on the matter of transparency later.
The other notable development was the publication by the Commission of its vision for “fair” taxation of the digital economy, which came after France, Germany, and other influential member states had been pushing the issue of digital taxation for a number of weeks.
We can’t say for sure whether the Commission’s announcement is the result of increasing political pressure for solutions to tax issues in the digital economy, or whether it was working towards … Read More »
The word substance has become integral to the base erosion and profit shifting project. But it’s also one that appears to be causing businesses and tax authorities the world over significant problems.
Of course, one of the core aims of BEPS is to prevent situations whereby taxpayers get away with double non-taxation. However, as the International Chamber of Commerce pointed out last week, the increased focus by revenue authorities on economic substance combined with a lack of clarity on the definition of the term across jurisdictions is leading to more cases of income being doubly taxed, rather than the other way around.
Facing the prospect of being wrongly taxed, taxpayers have little choice but to fight it out in the tax tribunals and appeals courts, which even in the most advanced countries is usually an expensive, time-consuming process, and risky if litigation … Read More »
In general, governments are continuing to move quickly in the area of taxation in the era of BEPS. Yet, a survey conducted by financial advisory firm Grant Thornton earlier this year found that the OECD BEPS project has had little impact on the way companies plan their tax affairs. As many as 78 percent of businesses have not changed their business’s approach to taxation, the survey, published in September, found, despite more than 80 countries having agreed to adopt at least the minimum elements of the BEPS Action Plan at that point.
Why should this be the case, when companies around the world are experiencing an unprecedented level of change and uncertainty? Well, the key word it seems is uncertainty. When you are uncertain of the right way to go to get to your preferred destination, and someone keeps redrawing the … Read More »
It was encouraging to see German Finance Minister Wolfgang Schäuble rebelling against European Commission proposals for public country-by-country reporting at the latest meeting of EU finance ministers, given the weight of Germany’s voice in the EU. It’s going against the grain these days to question the call for greater corporate transparency. And perhaps there’s an argument that multinational firms could benefit from being more open about their activities from a public relations point of view, in much the same way as offshore jurisdictions like Guernsey have. Yet, as Schäuble suggested, there has to be a balance between “transparency and practicality.”
As Schäuble pointed out to his counterparts in Brussels recently, publishing sensitive company information in the public domain could lead to all sorts of unintended consequences, such as “lining someone up to be pilloried publicly.”
For more information on this, … Read More »
The European Council, with the Netherlands at the presidency helm, last month released its BEPS Roadmap for the short and medium term. It lays out plans for further work on the Interest and Royalties Directive to include further restrictions on interest deductions, and on the Anti Avoidance Directive, with key focus on tightening controlled foreign company rules across the EU. This is perhaps an uncomfortable position for the Netherlands to be in; during much of the BEPS initiative, it remained largely silent on the proposals being put forward, choosing to wait for recommendations. And while it has made a few changes to its laws to reflect certain BEPS developments, in part in line with EU requirements, the Netherlands has not done so with the sheer gusto demonstrated by, say, the UK.
For more information on this, and other topical international tax … Read More »
It would be somewhat remiss not to mention the latest battery of anti-corporate tax avoidance proposals from the European Commission, especially as they represent probably the most serious attempt by Brussels so far to harmonize corporate tax in the EU. Indeed, even the most europhile member states in the heart of “old Europe” (France, Germany, Benelux et al) must have been taken by surprise by the ferocity of the Commission’s recent attacks on member states’ tax regimes. But, rather than do the predictable thing of chastening Brussels for its latest power grab over the tax sovereignty of European nations, it is possible look at this from a different angle. If there’s one good thing to come out of the EU’s aggressive stance on tax avoidance, it’s that minds are beginning to focus on tax reform on the other side of … Read More »
BEPS may be changing the international tax landscape irrevocably – whether for better or worse being a matter of intense debate – but the allure of offshore and low-tax financial centers remains as strong as ever. For example, the little island of Guernsey, which at just 78 square kilometers in area is over half the size of Washington DC, is now home to more non-UK entities listed on the London Stock Exchange than any other jurisdiction globally. In fact, the UK Crown Dependencies (Guernsey, Jersey, and the Isle of Man) all play a hugely important role in funneling investment into the capital markets of London, and the wider economy of the UK. One-third of the Chinese companies listed on London’s Alternative Investment Market (AIM) were incorporated in Jersey in 2014, up from one-quarter prior to 2008. LSE data also shows … Read More »
It is claimed that the BEPS project is a global initiative, built on a worldwide consensus of OECD and G20 members, and other key economies. That’s true to the extent that these countries are regularly heard to pay lip service to the work of the OECD in all its anti-tax avoidance endeavors. But when you look a little closer, there are stark similarities between the OECD’s work and Europe’s vision of what worldwide corporate taxation should look like. Perhaps this is not surprising, as, after all, the OECD and its 2,500-strong team of technocrats, administrators, and academics are based in Paris. Indeed, Pascal Saint-Amans, one of the main supervisors of the BEPS project, is a former French civil servant. And the fact that 25 of the 34 OECD member countries are in Europe will naturally give much of the OECD’s … Read More »
Apparently, the numerous consultations that the OECD undertook with businesses and other stakeholders as part of the BEPS project generated some 12,000 pages of comment. I do wonder, however, how much of this verbiage the OECD actually took on board when formulating the final BEPS reports, which were announced, in that most modern of ways, via a webcast from OECD HQ in Paris, on October 5.
In reality, the content of the 15 reports, filled as they are with jargon, official-speak and complex tax concepts, is what most of us were expecting. What’s really quite worrying me is that the OECD seems to be utterly in denial that the BEPS recommendations, when (and if) implemented, could do any harm to businesses, investment, and economies. Indeed, I was astonished to hear Saint-Amans admit in his presentation that more double taxation is … Read More »