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Accusations around multinational taxation pose 'threat' to international tax system

Accusations around multinational taxation pose 'threat' to international tax system
15 Nov 2012
The taxation of multinational companies across their global markets is thrown back into the spotlight today as the UK Government's Public Accounts Committee quizzes senior representatives from Google, Starbucks and Amazon on their corporate tax affairs in the UK.

This further grilling for multinational executives only serves to perpetuate the mixed messages being received by multinationals, as governments lower corporate tax rates on one hand whilst pointing the finger and creating instability with the other. All of this will unfold alongside calls for moves to an additional sales based tax, away from the profit based system that is currently in place.

The tax planning undertaken by these and other multinationals across the world is entirely legal and is undertaken in response to the diverse tax laws laid out by multiple jurisdictions around the world. The Finance and Tax Directors of multinational businesses have to deal with multiple jurisdictions across the globe. Ultimately, if Tax Directors did not engage in tax planning, then they would end up with ever- increasing effective rates of tax, meaning a reduced return for investors and implications across the financial system, not least for pension funds.

To ask a multinational company either to choose which country within its global operations should benefit from the revenue raised through its tax obligations, therefore denying others, or to decide on an amount of tax beyond the legal requirement which should be taken from investor returns and given to one or more jurisdictions, are surely a moral and political judgment outside their scope of responsibility. Politicians and supranational bodies must take responsibility for the tax systems that they have designed and not push this responsibility back to the companies that have to operate these systems.

There is a danger of accusations and the threat of new measures adding considerable instability to the international tax system. The prospect of continual tax code changes does little to promote the stability needed for multinationals' growth and the potential for tax authorities to, for example, penalize certain structures retrospectively, is doing little to encourage investment in an ongoing environment of economic uncertainty. Equally, whilst commendable, the actions that tax authorities have taken to more effectively engender the exchange of information across borders is creating a burgeoning compliance burden for multinationals that must be managed.

Frederic Donnedieu de Vabres, Chairman of Taxand

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