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Davos: The Tax Planning Debate Continues

Davos: The Tax Planning Debate Continues
24 Jan 2013

First published in Economia and The Economic Voice, 25 January 2013

"The debate around the taxation of multinational companies across their global markets shows no signs of abating with David Cameron today repeating accusations that large corporates are being 'immoral' in their tax payments in his speech at the World Economic Forum in Davos.

In his short speech, David Cameron called on world leaders to increase their efforts to stop companies engaging in tax evasion and to clamp down on the methods corporates use to avoid tax payments.

As we approach the G8 meeting hosted in London in June, we are likely to see a continuing flow of deliberation on crossborder taxation, as leaders look to establish their positions and steer the debate in advance.

Conversation at the G8 summit is likely to focus on the issue of 'harmonisation' and whether a more joined-up tax system is the best solution to the problem of establishing where company profits are taxed. The location of taxable profits, or 'permanent establishment' is an extremely complex area, and one made even more complicated for companies with intangible assets, whose profits are essentially global in nature.

Still, harmonisation looks a long way off. In fact, the trend of late seems to have been in the opposite direction, and tax legislation is becoming increasingly complex and increasingly diverse, with jurisdictions continually tinkering with their tax regimes in order to demonstrably close perceived 'loopholes'. Taxand's global survey also indicated that whilst multinationals have a desire for harmonisation, only 42% feel it is achievable over the next 5-10 years.

Fierce competition for inward investment between countries is also creating another hurdle for harmonisation. Internet companies in particular have been targets for public criticism, having been attracted to tax regimes where their large numbers of intangible assets are taxed in a much more accommodating manner. This has meant jurisdictions such as Ireland and Belgium have become hubs for companies in this sector to base their businesses.

Frederic Donnedieu de Vabres, Chairman of Taxand, the world's largest independent global organisation of specialist tax advisors to multinational businesses.

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Taxand's Take

"There remains a necessity to strike the right balance between understanding the role of multinational companies, and the roles of their finance and tax departments to contribute to shareholder value, alongside the need to manage their tax responsibilities across a number of jurisdictions.

There would no doubt be considerable interest from multinationals in increasing their dialogue with the relevant tax authorities in the early stages of a project in order to obtain prior agreements for a particular initiative or investment. It is this, as opposed to a pursuit of harmonisation, that perhaps poses the best way forward."

Taxand's Take Author