|Tax experts consolidating views on multinational economic base erosion|
21 May 2014
Given the current global economic outlook and the apparent lethargy displayed by the world’s governments in tackling an outdated international tax system, there are more reputational and strategic risks around tax, than ever before, with multinational firms being subjected to public and political scrutiny for their ‘favourable’ tax structures.
Base Erosion and Profit Sharing (BEPS) therefore remains one of the hottest topics under discussion, especially since the OECD’s BEPS Action plan was endorsed by the G20 Finance Ministers in Moscow last year.
BEPS has been at the centre of many high profile international controversies involving Multinational Enterprises (MNE’s) paying relatively little in tax despite reaping considerable profits, explains Stiaan Klue, Chief Executive of South African Institute of Tax Professionals (SAIT). “Certain MNE’s have grown brazenly confident in adopting aggressive tax positions by taking advantage of the complex web of international tax laws and basing their operations across a number of sovereign districts for this purpose.” says Klue.
BEPS is a major concern among governments worldwide, but the challenge is to tackle the abusive tax behaviour of a minority of MNE’s in a manner that doesn’t impinge on the rights of the vast majority of international businesses entering into genuine commercial transactions.
The #Davis Committee, appointed by Finance Minister Pravin Gordhan, is currently reviewing South African tax laws to determine the extent to which the South African legislature facilitates base erosion and profit shifting, and the Committee’s interim report to the Minister of Finance on BEPS is due shortly.
Judge Dennis Davis, leading the Ministerial Committee on tax reform, is scheduled to engage and consolidate with the tax industry in June. “It is expected that Judge Davis will focus on the BEPS issue, as it [BEPS] will be a key focus of discussion at the Tax Indaba”, says Klue.
Until recently, BEPS has been justified by the CEOs of various MNE’s, who felt it was their fiduciary responsibility to shareholders to ensure the lowest exposure to tax for the company. Now however, CEOs are increasingly cognisant that tax has become closely tied to corporate reputation. “Managing tax risk and reputation have assumed greater prominence and corporations can no longer just point to their good compliance behaviour,” comments Marcus Botha, a Senior Manager at PwC Tax Services. “This no longer satisfies the external stakeholders’ needs for moral corporate taxpayers and enhanced tax information disclosures.”
The argument around whether South Africa should introduce protective policy changes is certain to form a central part of the debate at the Tax Indaba. BEPS burden a government with less revenue and a higher cost to ensure compliance, and in a developing country such as South Africa, this underfunding of public investment is particularly harmful to any efforts designed to help promote economic growth. However, Chas Roy-Chodhury, Head of Taxation at ACCA, points out that any country that creates policy uncertainty or tries to tackle the problem in isolation of its peers runs the risk of creating the possibility of double taxation, and will suffer dire consequences in attracting foreign investment.
Aside from BEPS, the agenda for the Tax Indaba has been developed by the International Institute for Research (IIR) to include an overview on South African Tax and to contextualising pertinent issues facing the country such as the proposed mining and carbon taxes.