Fear that tax, income information will be abused
29 September 2015
Posted by: Author: Amanda Visser
Author: Amanda Visser (BDlive)
Multinational companies are currently facing several international challenges, with added burdens caused by the proposals in the base erosion and profit shifting (Beps) initiative.
One proposal that causes major concern and uncertainty is the requirement for country-by-country reporting by multinationals.
The requirement forms part of the 15-point action plan developed by the Organisation for Economic Co-operation and Development (OECD) to prevent the erosion of a country’s tax base through the illicit flows of revenue to low-tax jurisdictions.
Multinationals will be required to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, as well as information about which entities do business in a particular jurisdiction and the business activities each entity engages in.
It has been recommended that the first country-by-country reports should be filed by December 2017.
BDO tax partner David Warneke said at the recent Tax Indaba in Johannesburg that business is concerned that some countries have already started demanding additional information that is not required by the OECD’s proposal.
He said this raises questions about what the tax authorities want to do with the information. Mr Warneke is also concerned about the protection of the confidentiality of the information.
Mr Warneke said some developing countries simply did not have the necessary resources to properly use the information. "It remains a concern and a risk to companies as to what is going to happen with the information that is shared with other tax authorities," he said.
KPMG international tax partner, and member of the Davis Tax Committee, Deborah Tickle said the Beps initiative was premised on the fact that there has to be co-ordination and buy-in from countries.
The Davis committee has already released its first interim report on Beps and requested further comment on some of the concerns from a South African perspective.
Ms Tickle said that in many respects South Africa does not have a choice at the moment about following the Beps project. The initiative sets out certain (international) rules and countries who want to stay in the international arena have to follow the rules.
"However, if the information that is obtained through the Beps initiative – like country-by-country reporting – is abused, then countries (like SA) are no longer obliged to give that information."
One fear is that tax authorities will use the information to make tax adjustments based simply on the reports.
According to Ms Tickle, the authorities must make an independent assessment and conduct an audit if it is not satisfied with the company’s disclosures. It cannot simply use the country-by-country report to make adjustments. She admitted that it is a fine line between the two.
The OECD said in its guidance note on country-by-country reporting that there are specific conditions that underpin the obtaining and use of the country-by-country reports.
One of the conditions is that tax authorities should use the information to assess Beps-related risks and not to make adjustments to the income of any taxpayer, simply based on the data in the country-by-country report.
However, SA Institute of Tax Professionals deputy CEO Keith Engel noted that country-by-country reporting may even have some benefits for the private sector.
Certain countries within the region are imposing withholding and other charges that should fully demonstrate that certain companies are actually being over-taxed, Mr Engel said.
This article first appeared on bdlive.co.za.