In case you missed it, international tax reform is “on a roll”. It might be well overdue, but its effects will be dramatic to say the least, and not necessarily expected.
In recent times, to name a few developments, we’ve had BEPS and all that it brings, the EU tax rulings state aid saga, a huge push for tax transparency (notwithstanding the very real concerns about the commercially sensitive nature of the information being demanded), “Netflix” taxes, “Google” taxes, Diverted Profits Taxes, the Panama Papers leaks, the lessening of bank secrecy, high tax haven scrutiny, strong pressure on the US to reform its corporate tax system (including re “inversions” and also the parking of US corporate profits offshore thus not being subject to US tax until repatriated) and a major focus on the tax paid by, and tax practices of, multinational enterprises (MNEs). Not to mention incessant, and increasing, calls for MNEs (and corporations generally) to pay their “fair share of tax” (whatever that means).
While ostensibly initially focussed on MNEs, this heightened international tax action seems to have filtered down to corporates generally, and certainly larger corporations.
Corporates might be excused for thinking the world has turned against them, or at least the tax world anyway!
And now we have calls by the EU Special Committee on Tax Rulings II for further major corporate tax changes to make “corporate taxation fairer and clearer”. Recommendations approved by the Committee, and to be voted by the EU Parliament as a whole during its July 2016 session in Strasbourg, call for an EU public register of beneficial owners of companies, a tax havens blacklist, sanctions against non-cooperative tax jurisdictions, action against abuse of “patent box” regimes, a code of conduct for banks and tax advisors, tax good governance rules in all EU trade agreements and a withholding tax on profits leaving the EU.
Members of the EU Parliament (MEPs) have advocated sanctions against non-cooperative jurisdictions, including a possibility to review and even suspend free trade agreements and prohibiting access to EU funds. They added that sanctions should also be put in place for companies, banks, accountancy and law firms and tax advisors proven to be involved in illegal, harmful or wrongful activities with those jurisdictions.
They also called on EU Member States to draw up sanctions against company managers involved in tax evasion and make it possible to revoke business licences in cases where professionals are involved in illegal tax planning and evasion schemes. The EU Commission should also explore the possibility of introducing financial liability for tax advisors engaged in unlawful tax practices, they added.
This is all pretty dramatic stuff!
Michael Theurer, one of the co-rapporteurs of the Committee’s report, said: “Tax dumping is done at the expense of the general public and small- and medium sized companies, who are the backbone of our European economy. In a fair tax system, multinational companies also pay their share and they should do so where they add value and make their profits”.
MEPs also called for a number of other measures, including:
- guidelines to better define what is allowed with regard to transfer pricing;
- an EU-wide withholding tax, to be collected by Member States, to ensure that profits made in the EU are taxed at least once before leaving it;
- a code of conduct for banks, tax advisors, law and accounting firms;
- a global register of all assets held by individuals, companies and entities, such as trusts and foundations, to which tax authorities would have full access.
While there should be no truck with MNEs, or corporations (or taxpayers) generally, engaging in tax evasion (whether it be though the use of tax havens or secrecy jurisdictions, or anything else), there is genuine concern that the current international tax “reform” pendulum is in danger of drifting too far in one direction, or at least that there has been a loss of balance or perspective in the drive for change. It is not in dispute that the laws governing international taxation have passed their use-by date. Changes are needed, and are happening, but will they be the right changes? Only time will tell.