BEPS: A tax solution or a sticking plaster?
Donald Drysdale studies a report which provides some valuable independent insight on the BEPS project.
The All-Party Parliamentary Group (APPG) on Responsible Tax was established in 2015 as the first digital APPG. It seeks to facilitate open dialogue among a variety of stakeholders to develop a shared understanding of what responsible tax behaviour entails and how it can be encouraged.
Chair of the APPG is Rt Hon Dame Margaret Hodge MP, who spoke at the ICAS Tax Conference ‘Taxing Times’ held in Glasgow on 24 May 2016. She is a former chair of the House of Commons Public Accounts Committee (PAC), where her controversial pronouncements on tax avoidance gained a mixed reception amongst chartered accountants and tax advisers.
Vice-chair of the APPG is Rt Hon Lord McFall of Alcluith, a former chair of the House of Commons Treasury Committee, who now serves as a Public Interest Member on the Council of ICAS.
An examination of BEPS
Earlier this month the APPG on Responsible Tax published a report ‘A more responsible global tax system or a ‘sticking plaster’?’, setting out its views on the OECD’s base erosion and profit shifting (BEPS) process and subsequent recommendations to the G20 on fifteen key action points to combat multinational corporation tax avoidance.
The OECD’s action plan covers a broad range of topics including country-by-country reporting of key financial data by multinationals, model legislation for abusive tax and intellectual property (IP) structures, and guidance on the challenges of taxing the digital economy.
In response to BEPS, the APPG invited views on:
- The effectiveness of the OECD’s proposals in responding to the globalisation of businesses, the growth of the digital economy and other challenges;
- The impact of those proposals on the UK, the EU and other developed economies, and on how developing countries raise revenues and fight poverty;
- The respective roles of the UK government and other stakeholders in contributing to, supporting and implementing the OECD’s BEPS proposals;
- The scale and distributional impact of BEPS, and the ability of the OECD or others to track progress effectively over time;
- An assessment of existing and proposed UK tax changes which might impact on the effectiveness of the OECD’s proposals;
- The role of non-OECD and non-G20 governments and other international institutions in the agreement of global tax rules;
- The longer term challenges not addressed by BEPS, including actions the UK could take in its tax policies (including tax treaties) to ensure that UK companies do not make use of tax havens for tax minimising purposes; and
- Principles which could be considered over time as effective mechanisms for dealing with the changing global economy, including the fair and effective taxation of multinational companies.
The APPG’s report
APPGs do not generally issue reports, so this report about BEPS and tax avoidance from the APPG on Responsible Tax is unusual. It runs to only twenty pages and is easy to read. Most of the work reflected in the report was undertaken before the UK voted for Brexit, but its conclusions remain valid.
It is evident that Dame Margaret has tried to re-create the modus operandi of a parliamentary committee – though without the ability to summon witnesses to give evidence. The report lists those who gave evidence, including ICAS; these were self-selecting and included no government bodies. The submission from ICAS can be found here.
Key conclusions by the APPG include the following:
- The BEPS proposals don’t deliver the level of transparency needed to restore public confidence in the fairness and integrity of our tax system.
- The UK should take the lead and legislate to introduce public country-by-country reporting for UK publicly quoted companies, whilst pressing the case for public country-by-country reporting on a multilateral basis.
- The UK should use statutory powers to compel its Overseas Territories and Crown Dependencies to adopt public registers of beneficial ownership.
- National governments should consider acting collectively to prevent companies from exploiting new tax loopholes – for example, by requiring companies to seek prior rulings before using new tax avoidance measures, and by publishing such rulings.
- The OECD should monitor strictly the implementation process of BEPS year-on-year, to ensure that its recommendations are being fully implemented and (in particular) that developing countries are given the tools to successfully implement proposals and challenge multinational companies who shift profits out of their jurisdiction.
- Most importantly in my view, the UK government needs to stop facing both ways. I have already addressed this in my article Morality and tax: Should standards be different at home and abroad? As explained in Section 5 of the APPG report, in public the UK has been a driver and supporter of the BEPS project from the outset, but behind closed doors it has undermined some of the OECD’s efforts by taking an aggressive stance on tax competition. By promoting its patent box tax relief, weakening its rules on controlled foreign companies, jumping the gun on the introduction of its new diverted profits tax and failing to crack down on its network of tax havens, the UK has resisted important proposals which could have more effectively avoided profit shifting by global corporations.
The APPG report has no statutory force and may not achieve any radical changes, but is nonetheless a thought-provoking contribution.
It concludes that the OECD’s proposals will reform existing rules and give tax authorities better tools to combat tax avoidance. However, it regards the proposals as a ‘sticking plaster’ on a global tax system that is struggling to remain fit for purpose in the twenty-first century, with the growth of multinational companies operating in a digital environment.
The BEPS process is an important step – but should be only the first step in a longer process of radical reform. It is unclear whether the UK, having voted for Brexit, will strive to remain a leader in international fiscal co-operation. Perhaps, on trying to steady its economy as it moves towards a looser relationship with the EU, it will become less influential and more isolationist in its approach to taxing global enterprises. I believe this would be regrettable.
ICAS members, ICAS Tax Professionals (ITPs), students and member firms with views on the APPG’s report are invited to send these to ICAS at email@example.com so that they may be taken into account in future submissions relating to the BEPS project.
Article supplied by Taxing Words Ltd