{"id":21583,"date":"2013-07-15T07:08:07","date_gmt":"2013-07-15T06:08:07","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=21583"},"modified":"2013-07-15T07:08:07","modified_gmt":"2013-07-15T06:08:07","slug":"the-cbi-want-change-to-the-tax-system-but-not-whilst-they-can-still-extract-unfair-benefit-from-the-existing-system","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2013\/07\/15\/the-cbi-want-change-to-the-tax-system-but-not-whilst-they-can-still-extract-unfair-benefit-from-the-existing-system\/","title":{"rendered":"The CBI want change to the tax system but not whilst they can still extract unfair benefit from the existing system"},"content":{"rendered":"

The OECD will be\u00a0publishing\u00a0its report to the G20 finance ministers ion how to tackle tax avoidance this week. There will be more of that anon, but this morning the FT has noted the CBI's\u00a0peremptory\u00a0response. As they note<\/a>:<\/p>\n

In a report to be published this week, the CBI, Britain\u2019s main business group, will urge ministers to stand firm against reforms that could dilute the UK\u2019s tax competitiveness, including significant change to the taxation of foreign profits.<\/p>\n

\u201cMaintaining and improving UK tax competitiveness should be a core objective when the UK seeks to shape international tax rules,\u201d the report will say.<\/p><\/blockquote>\n

As is also noted:<\/p>\n

Some leading academics and campaigners have called on governments not to waste an unrivalled opportunity for a radical rethink of the corporate tax system. But the CBI will dismiss as unworkable the main alternatives, including a turnover tax, a destination-based corporation tax and \u2018formulary apportionment\u2019, a system of dividing up taxable profits between countries using a formula.<\/p><\/blockquote>\n

Now I would agree that the first of these is bizarre, and wholly\u00a0inappropriate\u00a0 The second\u00a0represents\u00a0Prof Mike Devereux's latest thinking, and is VAT by any other name -\u00a0with\u00a0all the same impact of charging more on the poorest and letting capital off tax as far as I can see, and the last is of course the work of civil society, me included, except not quite.<\/p>\n

As civil society wrote in 'No More Shifty\u00a0Business<\/a>' (which I have to say is, I still think, one of my better titles because that was one of my contributions to this work):<\/p>\n

The new briefing paper,\u00a0No more shifty business<\/i>, calls on the OECD and G20 to work with the United Nations Tax Committee and governments in developing countries to define new rules for the taxation of multinationals<\/p>\n

The new rules must ensure that each country is able to tax a fair share of the profits earned by multinationals operating within its territory. They should also treat multinationals as what they really are: complex structures bound together by centralized management, functional integration and economies of scale.<\/p>\n

Finally, the briefing argues that multinationals must pay their taxes where their economic activities and investment are actually located, rather than in jurisdictions where their presence is fictitious and explained by immoral tax avoidance strategies.<\/p><\/blockquote>\n

It's hard to see how the CBI could object to that - unless of course self interest drives them to\u00a0support\u00a0the\u00a0existing\u00a0arrangement\u00a0that suits them rather well. Nor is it easy to see how the CBI could really object to the direction of travel civil society\u00a0has\u00a0proposed:<\/p>\n

When it comes to the taxation of MNCs, current\u00a0international tax rules treat the different branches\u00a0and subsidiaries that form the multinational group as\u00a0independent companies. This notion is at the heart of\u00a0the OECD\u2019s Arm\u2019s Length Principle. The reality is that\u00a0the current tax rules are based on a false assumption.<\/p>\n

Not surprisingly, these rules have in fact contributed to\u00a0the problem for which urgent solutions are now\u00a0desperately being sought.<\/p>\n

If MNCs were treated as just one single entity, rather\u00a0than as the sum of independent companies, they would\u00a0not be able to benefit from creating fictitious entities in\u00a0tax havens as a strategy to avoid or evade taxes. Nor\u00a0could they exploit to their advantage \u2014 and at everyone\u00a0else\u2019s expense \u2014 the many existing loopholes in bilateral\u00a0tax treaties.<\/p>\n

Treating MNCs as just one entity would not only be more\u00a0realistic, but would also lead to a more transparent and\u00a0easy-to-administer system.<\/p>\n

In order for MNCs to be taxed according to their real\u00a0nature, two measures should be introduced:<\/p>\n

- MNCs should be required to submit a worldwide\u00a0combined report, including consolidated accounts,\u00a0to the tax authorities of each country in which they\u00a0operate.<\/p>\n

- MNCs should be required to provide a country-by- country breakdown of their employees, physical\u00a0assets, sales, profits and taxes actually due and paid.<\/p>\n

These two measures could be the basis of a tax system\u00a0that would consider the total profits made by a MNC,\u00a0rather than the profits made by any of its parts. It would\u00a0then allocate these profits to the different countries in\u00a0which the MNC conducts its real business, according to\u00a0transparent criteria. Each country would be free to decide\u00a0what tax rates to apply to their corresponding tax base.<\/p>\n

These measures should be complemented by others\u00a0in order to foster financial transparency, such as the\u00a0public disclosure of the beneficial owner of companies,\u00a0foundations and trusts, and the adoption of automatic\u00a0information exchange as the new global standard.<\/p><\/blockquote>\n

This is especially true when we \u00a0stress:<\/p>\n

We are not asking for a revolution, but for an evolution of\u00a0the current international tax system. We are asking for a\u00a0determined and focused gradual change.\u00a0Requiring MNCs to provide a global combined report\u00a0could be done within the international rules that are\u00a0currently in place. In fact, the United Nations\u2019 Manual on\u00a0Transfer Pricing already recommends that tax authorities\u00a0require MNCs to provide worldwide consolidated\u00a0accounts to facilitate the effective implementation of\u00a0transfer pricing audits. Consolidated accounts are also\u00a0necessary to apply the \u2018profit-split\u2019 method, which is\u00a0already allowed within the current OECD guidelines.\u00a0Under this method, the total profits of a MNC are\u00a0allocated to different jurisdictions according to so-called\u00a0\u2018allocation keys\u2019 \u2014 clear and concrete criteria defined on a\u00a0case-by-case basis by the parties concerned.<\/p><\/blockquote>\n

And yet the CBI\u00a0fears that the two year time scale of the OECD programme could (<\/span>according\u00a0to the FT):<\/span><\/p>\n

lead to significant changes \u201cwithout a full understanding of international business models\u201d. The UK \u201cshould resist any changes that have not been fully thought through\u201d it will say.<\/span><\/p><\/blockquote>\n

So, their argument is that they want change but just not right now whilst they can still extract unfair\u00a0benefit\u00a0from the existing tax system at cost to all the rest in society. I think we get the message.<\/p>\n","protected":false},"excerpt":{"rendered":"

The OECD will be\u00a0publishing\u00a0its report to the G20 finance ministers ion how to tackle tax avoidance this week. There will be more of that anon,
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