Tax policy and controversy briefing
Although the last few months have had less public discussion of BEPS, the OECD’s working parties have been using that time to negotiate and finalize the wording of the seven BEPS action items that were delivered on 16 September. The publication of these reports marks the beginning of what will surely be an extended period of assessment, discussion and potential implementation by countries around the world.
Not surprisingly, with the shift into the detail, the OECD has found it harder to obtain consensus as countries have started to firm up their positions. With the dates of the BEPS action plan inextricably linked to the political calendar and are therefore immobile, this has led to issues have been carried over for continued work where full agreement could not be reached. Indeed, only two of the reports were final, being the one on the Taxation of the Digital Economy and on the use of a multilateral instrument as a vehicle of delivery for many of the other deliverables.
Across the other deliverables, we saw an interim report with respect to Action 5 (Harmful Tax Practices), and reports with agreed draft recommendations on Action 2 (Hybrid Mismatch Arrangements), Action 6 (Treaty Abuse), Action 8 (Transfer Pricing for Intangibles), and Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting). With the 2015 actions still in the wings, it will be a very busy year ahead and the detailed work on the BEPS project looks likely to spill well into 2016 and beyond, even if the reports are delivered to time.
In our feature interview, Alf Capito, Asia Pacific Tax Policy Leader for EY digs right into the heart of the debate in his discussion with Pascal Saint-Amans, Director for the OECD’s Centre for Tax Policy and Administration. The interview occurred during Pascal’s recent visit to Australia for the G20 Finance Minister and Central bank Governors’ Meeting and the message is forthright. “A number of these players are new players, and as new players they haven’t had a history of dealing with tax administrations.” he said of some companies operating in the digital economy. “They are risk takers, they don’t care, they take the risk, so they are more aggressive, a number of schemes which are actually very aggressive.” Pascal also spoke of a more inclusive future for the G20 efforts, reflecting the G20 communique that was issued just one day earlier: “The big emerging markets, which were emerging, which are still emerging, were not involved and they were thinking of developing their own sets of rules. Now they are part of the project.”
The G20 communique
Pascal’s comments closely reflect the content of the G20 communique. In that document, the G20 calls for far wider involvement of organizations including the International Monetary Fund, the World Bank and the United Nations in the global tax debate, as well as referring to how tax can and should support the members’ growth agendas. These are issues that we will come back to as the joint initiatives develop.
Other stakeholders increase their activity
Staying at the supranational level, the IMF’s late June report titled "Spillovers In International Corporate Taxation" added to the ongoing BEPS debate, describing features of the international tax architecture which raise issues for developing countries, identifying some possible policy responses, and suggesting some radical alternatives.
Exchange of information
Mid-August, meanwhile, saw the OECD issue the voluminous Standard for Automatic Exchange of Financial Information in Tax Matters. Containing the text of the Model Competent Authority Agreement, the Common Reporting Standard and the Commentaries thereon, tax leaders in financial institutions will no doubt have made room for it in their late-Summer holiday suitcases.
Business as usual elsewhere
Beyond the supranational, many countries have been active on the policy front since our last edition; Spain and Sweden (among many others) have both issued significant tax policy reform packages, as has India in the area of tax administration. Major corporate and international tax changes in Japan and South Africa are also described by our authors, while in Australia an independent tax reform commission is called for in a recent EY report. In the UK, meanwhile, the government is clearly pushing to change the nature of the relationship between taxpayers and HMRC, announcing a consultation in relation to new criminal sanctions for offshore tax evasion.
Spain’s tax reform
Spain’s tax reform proposals (which were preceded by a controversial bill that expands a Board of Directors’ duties to include the approval of any transaction deemed significantly relevant for tax purposes) are discussed in our interview with Miguel Ferre, Spain’s Secretary of State for Finance, following our earlier interview of UK Minister, David Gauke.
Foreshadowing a fall in the main rate of corporate income tax to 25% (from 30%) by 2016, Mr. Ferre says that “The proposals we will retain (from the report on tax reform) are those which make it possible to enhance tax consolidation and to favor business competitiveness.” Speaking of the policy choice to not raise VAT rates, he adds: “At a time when the Spanish economy is beginning to show signs of recovery, a new increase in VAT will entail a negative impact on consumption and therefore on economic activity.”
While tax reform in the United States remains somewhat of a sleeping giant, much talk has been heard on the subject of corporate inversions to lower-taxed jurisdictions. This includes a procession of senators speaking during a Senate Finance Committee hearing where such inversions were described as a “virus” and a “fever”.
Tax revenues rising
More widely, we highlight a series of reports from the OECD and European Commission that, taken together, confirm that global tax revenues are reaching and even surpassing pre-crisis highs. We also kick off the first in a series of discussions with leading revenue authorities on how they use technology both now and in the future to manage their own risks and facilitate service delivery.
This broad mix of developments (and many more on top) are all layering more pressure on the tax function than ever before. This is confirmed by the results of EY’s 2014 Tax risk and controversy survey, which finds that reputation risk, legislative risk and operational risk are together making previous survey results pale in comparison.
Continuing to monitor the developments in tax policy and controversy, and predicting outcomes where possible therefore remains the order of the day. We hope this publication goes some distance to help you do that and, as always, if you would like to suggest topics for future consideration, please do let either of us know.