Corporate tax in 2013: Prepare for a Year of Action
First published in the International Tax Review
In times of austerity, viewpoints can quickly change, and tolerance levels fall more rapidly. Corporate tax issues used to be confined to the business pages, but this is no longer the case. While their views are sometimes misguided, the public are getting to grips with issues such as tax evaision and aggressive avoidance. This means a new era for taxpayers, who must now present an appropriate image on three fronts: to the authorities, to shareholders and to the public, worldwide. Taxand comment on the issues we're seeing across Asia-Pacific and Europe.
In Asia Pacific, following the events of 2012, during which India was widely criticised for the anti-business approach and uncertainty that it created through the use of retroactive amendments, Anurag Jain, Taxand India, believes Indian tax policy in 2013 will be more geared towards attracting foreign investors.
Certain amendments in Finance Act 2012, especially those made retrospectively, resulted in severe criticism of the government by multinational companies, and affected outbound investments. The backlash prompted the government to set up a committee to review some of the controversial changes.
"In light of this background, corporate tax policy next year is likely to be conducive to foreign investment," says Jain. "Even if fresh measures to attract investment are not taken up, the existing irritants in the tax laws are likely to be removed on diluted."
There is the potential for one particularly drastic change to the Indian tax code, with general anti-avoidnace rules (GAAR) scheduled to come into effect from April 1 2013. However, uncertainty surrounds the issue following the Parthhasarathi Shome-led government appointed committee's recommendation that GAAR be delayed by three years.
"Next year will see India's first traction with GAAR, which are presently slated to come into effect from April. Unless deferred for some period - as recommended - this is likely to be the dominant corporate tax issue for transactions and structures," says Abhishek Goenka, Taxand India.
"It would be good for taxpayers to start reviewing their existing structures and long-term transactions to test for GAAR and take remedial measures where required," Abhishek adds.
The European Commission has a lot on its plate for 2013, with Algirdas Semeta, European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud telling ITR he expects to see progression issues includeing the common consolidated corporate tax base (CCCTB), tax policy convergence and tackling tax evasion.
Semeta says tackling tax evasion and avoidnace will remain a priority, particularly given the huge revenue losses member states continue to sustain as a result of these problems.
Advisers in countries across Europe want to see their governments make significant contributions to facilitating investment, in line with UK Chancellor of the Exchequer George Osborne's recent moves.
The Netherlands is one such country, and Gertjan Hesseberth of Taxand Netherlands says he wants to see the Dutch Finance Ministry, supported by the tax authorities, "put its money where its mouth is and continue to support Dutch foreign investment policy."
"International media are increasingly becoming aggressive in their Robin Hood-like pursuit against corporate tax planning schemes, but, lacking sufficient technical knowledge, lose sight on nuances. The ever-stronger international demand for actual substance requires true backing by governments to contribute to local economies," says Hesselberth. "The Netherlands is ideally equipped for multinational entities to establish and maintain stable and compliant tax structures."
It is now up to national governments to convince multinationals that their jurisdiction meets the criteria laid out by Hesselberth above, and actions - in the form of reduced corporat tax rates and related incentives - will speak far louder than words in 2013.
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Rate reduction and base broadening are two trends that taxpayers have become familiar with over the last 20 years, and while this is set to continue, 2013 will see tax evasion and avoidance thrust firmly under the spotlight. At the same time, many governments are setting out attractive tax policies aimed at stimulating investment. Finding the right balance between tax planning, compliance and transparency will be a key test for taxpayers.