Tax policy and controversy briefing

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Significant changes in tax policy and controversy continued to unfold across the globe as we entered the second half of 2013. On 19 July, the OECD released its long-awaited “Action Plan” on base erosion and profit shifting (BEPS) at the G20 Finance Ministers’ meeting in Moscow, with the stated goal of ensuring the “coherence” of international corporate taxation.    

Since then, we have seen a number of unilateral developments unfold; the outgoing Australian government legislated a measure requiring the tax authority to publish the gross income, taxable income, and taxes paid of large taxpayers. The Irish Finance Minister proposed a ban on “stateless” companies that are incorporated in Ireland but for tax purposes are not treated as being a resident of any country. And Mexico released a substantial reform package that can be described as “BEPS-inspired”. All of these issues and many more are explored in greater depth in this 13th edition of the TPC Quarterly Briefing.

Feature interview: David Gauke, MP

Our feature interview is with a key figure in the global tax debate, David Gauke MP, Exchequer Secretary to Her Majesty’s Government of the United Kingdom. Mr. Gauke provides a rare inside view of evolving tax policy and enforcement trends, noting that the UK is determined to use its tax regime to “win the global race” for businesses looking to relocate or make new investments. He also explains the UK’s approach to tax administration and enforcement, balancing the need to tax economic activity with the desire to attract business investment. Mr. Gauke’s clear, insightful commentary makes for fascinating reading as he comments on the BEPS Action Plan, the use of General Anti-Avoidance Rules (or General Anti-Abuse Rule in the UK) to attack “artificial and contrived” structures and the UK’s “conscious” decision to reduce its reliance on corporate tax revenue.

European Union activity

Beyond the UK there have been a number of significant new developments in the European Union.  The European Council made public the legal opinion that found that the Financial Transaction Tax (FTT) exceeds the Member States’ jurisdiction for taxation under the norms of customary public international law. It was widely reported in early September that the European Commission has begun an investigation of the tax ruling processes of three member countries, Luxembourg, Ireland and the Netherlands, including assessing whether some rulings might be in contravention of EU state aid rules. More recently, the Commission has chosen to consider whether the UK’s Patent Box regime and Cyprus’ IP Box are consistent with the Code of Conduct for Business Taxation.

OECD consults with business

The OECD has begun consultations on the BEPS Action Plan and the business community is and will be actively involved with the OECD as it considers options for implementing the 15 Action Plan items.  An initial meeting of business representatives from the Business and Industry Advisory Committee (BIAC) and the OECD was held on 1 October.  This was the first formal opportunity for the business community to engage with the OECD on the Action Plan and, as noted in our article, the OECD has made a clear commitment to consult with business as it develops its recommendations.

The OECD’s work on the BEPS Action Plan was acknowledged by the G20 leaders during their meeting in St. Petersburg on 5-6 September. Several of the OECD’s initiatives were specifically endorsed in the “Tax Annex” to the G20 Leaders’ Declaration following the meeting. In particular, the Tax Annex emphasizes the importance of exchanging information and encourages all countries to join in the automatic exchange of information based on the development of a new global standard.  The Annex includes a specific statement that “The G20 has now endorsed the development of a new global tax standard: to automatic exchange of information.” As noted in our article, the G20 anticipates that a new de facto standard will be presented in early 2014, with automatic exchange commencing between G20 members in 2015.

Managing business traveler risk

The tax risks for business travelers are an area of continuing focus for tax authorities around the globe.  We first described these risks nearly two years ago, but our authors explain that short term business travelers not only continue to be a focus for many tax and immigration authorities, but also why the risks have continued to grow. As a result, more multinational companies are beginning to assess and effectively manage the risks of a globally mobile work force.

The OECD has been working for a number of years on practical guidelines that could be used to apply value-add (VAT) and goods and services (GST) taxes to cross-border transactions.  This frequently arcane and often complex area is explored in depth in this edition. The author explains the history of the OECD’s consultation process, explores the details of the consolidated OECD guidelines that were published in February 2013 and outlines the issues that will likely shape the development of future guidelines.

Finally, it is clear the fiscal shortfalls such as those underlying the recent government shutdown in the US will continue to drive the need for tax reform on both a national and global level.   At the same time, we expect that enforcement efforts will continue to accelerate as tax administrators focus their limited resources on those taxpayers and structures that are perceived as being the highest risk. 

We hope this edition of the TPC Quarterly will help you better understand how these trends are unfolding and how they will shape the tax policy and enforcement landscape in the future.