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Will G8 reform proposals really impact the global tax landscape?

UK
12 Jul 2013
UK Prime Minister David Cameron promised to use the G8 presidency to tackle the issues of tax avoidance and evasion. The recent G8 summit in Northern Ireland led to a declaration being signed by all members promising to take such steps, but will it really have a major impact on the global tax landscape? Rather than specific steps on measures to counter tax evasion and aggressive avoidance, the declaration is more a list of well intentioned, broad promises. Taxand UK details these promises and how future plans may impact multinational businesses.

The Loch Erne Declaration runs as follows:

  1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion
  2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where
  3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily  
  4. Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them
  5. Extractive companies should report payments to all governments - and governments should publish income from such companies
  6. Minerals should be sourced legitimately, not plundered from conflict zones  
  7. Land transactions should be transparent, respecting the property rights of local communities
  8. Governments should roll back protectionism and agree new trade deals that boost jobs and growth worldwide  
  9. Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries  
  10. Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account

Reform of international taxation
In considering potential reform of international taxation, it is important to separate the concepts of evasion and avoidance. However, this crucial difference is not something that many influential commentators talk about or even, perhaps, understand.  Avoidance and evasion are seen as “immoral” or “evil” and therefore the concept of legality does not come into the argument. For example, the information sharing and transparency declarations are a useful step, and should help tackle those who illegally shelter income and profits offshore. But these are not measures which will impact those multinationals who structure their cross-border operations in a tax efficient manner.

Certain areas of the UK establishment have led the way in attacking the tax practices of these multinationals and several countries have followed suit, but these attacks have not included suggestions for any viable alternatives. For example, on the one hand the UK government has been gradually making its tax system more attractive for investment, and on the other, has criticised multinationals for taking advantage of the benefits. 

Any reform must be multi-lateral. The G8 Declaration says that countries should change rules that allow profits to be shifted across borders to avoid taxes; and suggests that multinationals report their global tax profile to individual tax authorities. In practice, however, in a global economy where different countries have different approaches to taxation and investment, is it truly going to be possible to harmonise rules in this way? There may be a number of potential alternatives to help achieve this but how many are actually feasible and what will be the additional burden and cost to multinational companies?


Your Taxand contact for further queries is:
Kevin Hindley
T. 
+44 207 715 5235
E. khindley@alvarezandmarsal.com

Joe Groenen
T. +44 207 715 5216
E. jgroenen@alvarezandmarsal.com
 

Taxand's Take

Any reform needs to be considered very carefully and the cost/benefit established. It is crucial that any potential change does not detract from multinationals investing in locations where they employ people or produce goods and services. Creating additional cost and uncertainty for businesses cannot be in the interests of the wider economy and therefore any measure must not be considered lightly. 

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