In a fast changing political world, tax avoidance by global businesses remains a major concern for Governments and the public.
Since 2013, in response to these concerns, the OECD has worked to tackle international tax avoidance. Their Base Erosion and Profit Shifting (or BEPS) project has looked to shutdown tax planning strategies that artificially move profits to countries where little or no tax is paid.
Based on some reports, you might ask if anything’s changed as a result of this project. Well, the BEPS project is now in its implementation stage which sees tax laws around the world being updated and new tax transparency laws being introduced.
One of the new transparency requirements is the “country by country” report, which all OECD and G20 countries have signed up to. It will give the tax authority in a group’s HQ location access to information on revenue, profits, taxes paid, employees, assets, etc. in every country the group operates in. The reports can be shared with tax authorities in other countries who agree to arrangements for sharing of information.
This is a major step-forward in giving tax authorities more information to assess the risk of underpayment of tax as a result of artificial tax planning but the information won’t provide all the answers. It’s a risk-assessment tool and should lead to informed questions being asked by the tax authorities to confirm the right amount of tax is being paid.
The UK Government has gone further and is asking large businesses to publish an annual tax strategy. The tax strategy gives businesses the chance to better explain and provide background to the taxes paid. This document is likely to be more useful in helping the public understand how companies approach their tax obligations.
Should the reports go public?
We’ve been strong in our support of the sharing of country by country reports between tax authorities.
We believe the success of these reports depends on them being consistently prepared and used by each country. It’s for this reason that we think the reports should only go public once there’s international agreement to do so and we support the UK government’s actions to deliver on this objective.
In the meantime, if the UK government used its powers to make the UK reports public ahead of other countries, there is a real risk that it would undermine the work achieved to date by the OECD and negatively impact the UK’s appeal as a global trading nation.
An extra reporting burden for companies must come alongside a more responsible and informed tax debate. That way the majority of companies that follow the law and pay the right amount of tax won’t have to face trial by public based on mistruths or misunderstanding of the tax rules.
Even among the community of global businesses and tax administrations, the information being shared is at risk of being misinterpreted if it is read out of context or without good understanding of the tax rules. Businesses are trusting that tax authorities will use the information with care and as intended for risk assessment purposes.
How are developing countries involved?
A number of developing countries have participated in the OECD’s work to date. They are also able to sign up to implementing the recommendations and participate in the exchange of information (e.g. to access country by country reports filed outside of their country).
The OECD recognise that these developing countries will need more help than the OECD and G20 countries during implementation and we welcome the guidance they’re issuing to support with this.
Implementation of the country by country reports is a big step in developing ways to bring transparency to global tax affairs of big businesses. The CBI is supportive of internationally agreed measures to help as many countries as possible access and use the information to manage tax risks in their country. The OECD has committed to a review of the transparency measures before the end of 2020. We think this will be an important opportunity to assess effectiveness of the system, including access by developing nations.