New rules set to change tax environment
06 October 2015
Posted by: Author: Amanda Visser
Author: Amanda Visser (BDlive)
Comprehensive measures to combat base erosion and profit shifting (Beps) have been finalised after three years of intensive research and international co-operation. These measures were announced in France on Monday.
Pascal Saint-Amans, head of the Organisation for Economic Cooperation and Development’s Centre for Tax Policy and Administration, said the conservative estimate is that countries are losing corporate income tax revenue of between $100bn and $240bn per annum because of Beps.
He said tax planning became part of the core business of a number of multinational companies. "They have used and abused the inefficiencies in the system to plan their affairs aggressively. We needed to fix this," Mr Saint-Amans said.
"The tax world will not be the same after the Beps measures … We are not saying tax avoidance is coming to an end, but we are saying there is a big change in the paradigm," he said during a media briefing before the announcement in Paris.
The centre was mandated in 2012 by the Group of 20 countries to develop measures that will protect their tax bases without harming international trade. This includes measures against harmful tax practices, tax treaty shopping, misuse of interest deductibility, hybrid mismatches and the bending of transfer pricing rules to shift profits to low tax jurisdictions.
"It is just the start of the work, but we are moving into a new phase where massive tax planning and avoidance is over. It will become even more difficult and costly, and avoidance will become evasion, because it will no longer be legal because the rules have changed," Mr Saint-Amans told reporters at the briefing.
He said the project benefited from "extraordinary political support". It is aimed at regaining the trust of taxpayers and citizens in the fairness of their system.
Keith Engel, deputy CEO of the South African Institute of Tax Professionals, said the Beps project has clearly had a major impact on the global tax environment over the last few years.
"Large multinationals have become much more reluctant to engage in artificial financing transactions and global supply chain schemes that lack substance," he said.
OECD head of Beps Raffaele Russo admitted in an interview with Business Day that some of the measures will undoubtedly increase the cost of compliance for multinational companies.
"The question really is what the alternative is? Many countries are interested in getting more information and disclosure from multinational companies to improve their risk assessment and to improve the deployment of their resources," he said.
Mr Russo added that without the Beps project there might even have been 20 or 30 different templates or different requests for information by tax administrators. That would have been a bigger cost and administrative burden to multinationals.
He disregarded criticism that some of the measures such as country by country reporting might be abused by tax administrations and that companies’ confidential information might end up in the wrong hands.
"My perception is that there has been aggressiveness (with tax planning) in the past and there has been unhappiness with the way that the rules have been applied in the past. This is exactly why we have changed the rules."
Mr Russo said those who fear the abuse and inappropriate use of information have not read the reports thoroughly.
"There will always be aggressive advisors who will try to find ways to criticise the project. The bottom line is that we have, against all the odds, delivered a massive change in the tax framework in just over two years."
Mr Engel said multinationals are rightly concerned that the Beps project can have — and is having — potentially adverse consequences.
"While the OECD can make as many official pronouncements as it likes, the emotions associated with the debate have unwittingly released a modern form of protectionism in many countries that will likely lead to increased double taxation, at least in the short-term. Getting the right balance between eliminating global non-taxation and double taxation is not going to be an easy task," Mr Engel said.
Mr Saint-Amans said the OECD had many requests from developing countries to be part of the project. "They should not be queueing, but they should be on an equal footing in this process," he said.
The centre will be developing an inclusive framework for implementation by January and February next year.
This article first appeared on bdlive.co.za.