BEPS plan puts companies in the firing line, say experts
The OECD-G20 plan to stop multinational tax avoidance could put companies in the middle of border disputes between revenue authorities, tax experts have warned.
But civil society groups say the plan has not gone far enough and could make it easier for some multinationals to dodge tax.
Treasurer Scott Morrison said the Coalition already had a tough plan to claw back revenue from multinationals and would “pay close attention to ensuring investment activity is not compromised and that Australia remains an economically competitive place to do business”.
Business groups and tax experts have warned that unilateral moves by Australia could result in double taxation, and even the OECD’s head of tax Pascal Saint-Amans has said the BEPS plan is likely to supersede Australia’s current laws.
Business Council of Australia chief executive Jennifer Westacott said it was important Australia did not act alone on global tax issues. Any changes needed to “avoid unduly deterring investment, reducing our competitiveness or creating unnecessarily complex tax arrangements,” Ms Westacott said.
Grant Thornton’s global leader for tax services Francesca Lagerberg said as long as businesses operated within regulatory boundaries, they still had a responsibility to their investors to keep costs down, “and this includes tax”.
Increased scrutiny from politicians, including the recent Senate inquiry into corporate tax avoidance, which hauled before it a number of big companies such as Apple, Google and Microsoft, had shifted the public debate to one where companies were morally expected to pay more, Ms Lagerberg said.
Legal guidelines there
Now the legal guidelines were also there.
“The way the [Organisation for Economic Co-operation and Development] reporting rules are set up means that even companies with relatively straightforward tax affairs could find themselves in the firing line,” Ms Lagerberg said.
However, BDO national transfer pricing lead partner Zara Ritchie said whether the plan stopped multinational tax avoidance depended on implementation by each country.
“Australia has already indicated it will adopt many of the recommendations and is likely to be an early mover,” Ms Ritchie said.
Deloitte tax partner David Watkins said revenue authorities were already being asked by the OECD to improve their ability to resolve double-tax disputes.
“The risk for business is that it finds itself in the middle of ‘border disputes’ between different tax authorities as the new BEPS (base erosion and profit shifting) measures take effect,” Mr Watkins said.
EY’s head of tax Craig Robson said businesses would need to ensure they had the resources to deal with compliance with the new rules.
PwC tax partner Tom Seymour said “the real question is not so much what’s been released, it’s what are the major countries around the world, in particular the US, going to do with them in terms of implementation?”
Better way
CPA Australia chief executive Alex Malley said multilateral action through the OECD/G20 action plan was a better way to go about tackling base erosion and profit shifting than having nations acting unilaterally.
Joe Kennedy, who works with Washington-based tech policy think tank Information Technology and Innovation Foundation, said the BEPS project should not be an excuse for hidden tax increases.
“We are concerned that criticisms of transfer pricing may provide an excuse to shift tax receipts from the United States to other countries by levying taxes according to criteria other than where profits are actually earned,” Mr Kennedy said.
Henry Birnkrant, a lead partner at US-based Alston & Bird’s Tax Group, said it was likely multinationals would need to move quickly to ensure profit attributable to the IP was accounted for.
But others are saying that rather than removing some of the most controversial tax tricks, such “patent boxes” and secret tax rulings, the OECD package legitimises their use. They see BEPS as a recipe for disagreement and conflict, which will delay how fast revenue authorities can collect greater tax, if at all.
“BEPS will fail to reach the stated objective of ensuring that multinational corporations pay their taxes ‘where economic activities take place and value is created’,” said Tove Maria Ryding, tax justice co-ordinator at the European Network on Debt and Development.
“We’ve seen companies such as McDonald’s exploit innovation boxes to carry out very aggressive tax avoidance. Thanks to this new package from the OECD, McDonald’s now has a guarantee that they can keep their current tax arrangements until 2021, and even after this date they will only have to comply with a new system full of loopholes.”
