The global campaign will continue in 2014 to improve international tax rules, many of which were first designed over a century ago, and to make them fit for the era of globalisation and new technologies. In 2013 policy attention was focused on the problem of profit shifting by global firms and its negative effects on tax bases, with the OECD issuing its widely publicised 15-point Action Plan on Base Erosion and Profit Shifting (BEPS) to leaders at the G20 summit in September. A key action area in the plan concerns crossborder tax hybrid schemes, with an OECD report due to address the problem in 2014. How do they work?
“A career in politics is no preparation for government”, said one of the characters in the 1970s British TV comedy series, Yes Minister. They had a point. After all, to newly elected politicians, government seems to be set up as a testing and complex route for taking (or stopping) decisions and implementing policy.
A view from Michael Izza, Chief Executive, ICAEW. ICAEW is a global accountancy body representing 140,000 Chartered Accountants across the world.
The Organisation for Economic Co-operation and Development (OECD) has long played a leading role in facilitating the exchange of tax information by tax authorities. The publication on 18 June of a proposed framework for developing a standard multilateral model for automatic exchange of financial account information was another significant milestone in the broader conversation about tax information exchange and transparency.
Whether you are a policy maker, business leader, politician, journalist, tax authority or just a regular citizen, the issue of tax is probably high on your agenda. Sponsored business brief.
Governments’ budgets have taken a heavy blow in the global economic crisis, as they have had to foot the bill of corporate bailouts and massive rises in unemployment. Policymakers had little choice but to squeeze public services and jack up income and consumption taxes. So it is little wonder that politicians and their electorates were enraged when news broke revealing that some of the world’s largest and most profitable corporations, some of them icons of the new economy, paid little or no tax at all, including in countries where they pulled in massive profits.
Ireland held the presidency of the European Union during the first half of 2013, and good progress was made in key areas, such as the banking union and economic governance, but much remains to be done to restore confidence in the EU, particularly for its citizens.
How multinationals and related firms calculate their internal global transactions for tax purposes is always under scrutiny, and even more so since the start of the crisis. The widely accepted way is to compare the value of those transactions with similar real market transactions. This arm’s length approach has its critics and competition is brewing. Here are the pros and cons.
For a more effective global tax framework, more transparency between jurisdictions will be vital. An automatic exchange platform, which will strengthen other steps aimed at closing off international avenues to tax evaders, is now in the pipeline.
Though optimism about a recovery may be rising, the global crisis has left deep scars and placed economies of all levels and sizes under severe strain. Achieving long-term, inclusive, growth is a key goal of OECD countries and a central theme of the Russian presidency of the G20. Reforms are essential for achieving that goal, though other measures, in fiscal policy for instance, could help too.
How to get it right
Austerity programmes to restore order to public finances can add to the woes of already struggling economies, leading to more job losses and social hardship. But there are ways for governments to put their fiscal houses in order, while supporting growth and reducing income inequality at the same time.
What the BEPS are we talking about?
Bloomberg’s “The Great Corporate Tax Dodge”, The New York Times’ “But Nobody Pays That” and the Guardian’s “Tax Gap”: these are some examples of the wide media attention given to global tax issues in recent weeks. The public is understandably becoming alarmed, since what is at issue is how profit shifting by multinationals is eroding their national tax bases. OECD initiatives on tax policy can help.
See the trends in taxes on personal income for the G7 from 2008 to 2011.
A rising tide may not now lift all boats, to misquote US President Kennedy’s original analogy made in 1963 linking economic growth to prosperity for all. Can governments maintain the social cohesion needed for sustainable, long-term growth? Supporting an equitable income distribution remains one of the key goals of fiscal (and tax) policy.
The economic ills of the crisis have rightly prompted public reevaluation of government spending habits and revenue collection on both sides of the Atlantic. While congressional super committees and EU delegations hash out plans to foot massive debt bills, a combination of civil society groups, the Occupy movement, and simple common sense have brought long-deserved attention to certain tax loopholes and corporate practices that cost governments billions of dollars.
Since 2008, unemployment in the OECD area has leapt from 6.1% to 8.2% in 2011. Governments searching for ways to increase employment must at the same time deal with the large budget deficits that are also a legacy of the crisis. Tax reform can play a role in this balancing act.
Social media is being exploited by advertisers, politicians and headhunters. Government tax offices are also weighing in.
Have you ever followed a tax official on Twitter, or “liked” your tax office’s Facebook page? From the US to New Zealand, tax authorities are raising their social media profiles by providing advice on filling out tax forms, sharing information on budget changes, promoting e-tax forms and, of course, with reminders of payment deadlines.
When the OECD joined the G20 crackdown on tax havens during the economic crisis in 2009, its longstanding work helped to curb this harmful tax practice and implement a global standard of bank transparency. Now the organisation is focusing on another time-honoured malpractice: that of slipping taxable income through fiscal loopholes. Some call this creative accounting, the OECD calls it aggressive tax planning, and because it is hurting government revenue, it is hurting entire economies as well.
Like the OECD, VAT has also been around for about 50 years. Is it time to reform some of the older, more unwieldy versions and go for a trimmer, broad-base, standard-rate VAT system instead?
Building tax administration capacity is needed to help spur development in Africa. A new survey shows that action is being taken, but more work is needed.
The recent financial crisis has left a hole in the public finances of many countries. Yet, with the right preparation, governments may have been better placed to fund that gap. This holds lessons for future crisis resolution strategies.
Defying fiscal deficits
One area where governments have been looking to raise revenues is green taxes. And with good reason. Taxes can provide a clear incentive to reduce environmental damage. But while the number of environmentally-related taxes has actually been increasing in recent years, revenues from these taxes have been on a slight downward trend in relation to GDP. The decline in revenue partly reflects the drop in demand for fuel in response to recent high oil prices and other factors, which in turn has led to a reduction in total revenues from taxes on energy products.
When the G20 decided to get tough on tax evasion, several decades of OECD work suddenly became even more relevant than before. The growing determination to tackle evasion is helping to restore trust in tax systems and close off avenues for illegal activities.
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