Tuesday 2 February 2016

Are we in the first years of a global tax war?


Tax evasion and avoidance has been called a trillion dollar evil and right now in Australia the corporate fight-back has begun as big business and wealthy individuals decide that they want to hold on to every single dollar of their share of this trillion.

Expect a national public relations campaign explaining why business and industry pay their fair share of Australian taxes if the Tax Advisory Panel (and the industry sectors it represents) gets its wish.

I suspect that they are all watching what is going down in Europe with a great deal of interest……..

Financial Times UK, 27 January 2016:

The uproar about Google paying £130m in back taxes and raising the amount it pays in the UK by just £10m a year is merely a little local difficulty compared with what comes next.
Apple could soon be instructed to pay billions, triggering a showdown between Europe and the US and a potential breakdown of the international tax system. This sounds apocalyptic but it is a decent bet.
If you doubt it, consider the following. From irate taxpayers and infuriated politicians to defiant bosses of multinationals, many are at the ends of their tethers about corporate tax.
Countries in the Organisation for Economic Co-operation and Development have spent two years trying to fix the system; one of the first results, Google’s UK deal, has gone down terribly.
Apple disclosed on Tuesday that its minimally taxed pot of overseas cash has grown to $200bn.
Tim Cook, chief executive, flew to Brussels last week to protest at the likelihood of being told by the European Commission to pay a chunk to Ireland, where it has operated since 1980.
American politicians are angry at what some call “a direct threat to the interests of the US”.
The question on which the future of global tax harmony rests is not whether Google should pay more in the UK and less in Ireland.
It is whether US multinationals pay much tax anywhere on overseas earnings, and whether they ever will.
For now, billions in profits are booked in Bermuda and offshore entities, annoying everyone.
The centre is not holding for Alphabet, Google’s parent group, as France and Italy reinterpret their laws to make it pay more tax before local profits escape to Ireland and then, via the Netherlands, to Bermuda.
It will surely fracture over EU cases against Apple and Amazon since the US lives in hope that one day, over the rainbow, their cash will come home to be taxed.
We face a historic moment.
The tax system formed under the League of Nations in 1928 relies on the idea that companies should be taxed largely where profits are created, not where they sell their products and services.
It could soon fall apart and what happens then is anyone’s guess, although it will not be pretty and will probably resemble a global tax war.

Read the rest of the article here.

The Guardian, 28 January 2016 

The UK government’s controversial tax deal with Google could fall foul of European competition rules and will be investigated if a complaint is made, the European commissioner responsible for the rules has warned.
Margrethe Vestager said that so-called sweetheart deals between member states and companies were unfair and could amount to illegal state aid.
The SNP has already written to Vestager calling for a European commission investigation into Google’s tax settlement
Asked on BBC Radio 4’s Today programme about the government’s £130m deal with Google on back taxes, she said: “That’s way too early to say because I don’t know the details of the deal.”
Asked whether she would investigate, Vestager said: “If we find that there is something to be concerned about, if someone writes to us and says: ‘Maybe this is not as it should be’, then we will take a look.”
She added: “We should be in a union where everyone has a fair chance of making it. If you are in a small innovative company … the bigger ones shouldn’t close the market and disable your opportunity to find customers.” 
Vestager’s remarks will add to the mounting pressure on David Cameron, whose government has been accused of being too close to Google……

The Sydney Morning Herald, 16 October 2015:

We are entering a new world of tax revenue wars, and no one can say who will emerge as the victor. 

All we know is that there will be tension over the next five years as governments seek to implement the global plan to end to tax havens from Luxembourg to Bermuda.

The Organisation for Economic Co-operation and Development plan - known as Base Erosion and Profit Shifting (BEPS) – will put an end to non-taxation.
From the OECD's perspective, in a world where there's no longer zero tax, everyone's a winner. In practice, there's likely to be winners and losers.

Tensions will arise because there's still no clear guidance on where or how much profit should be taxed.

BEPS action item 1 (there's 15 parts) said it was impossible to ring-fence the digital economy. It stopped short of recommending whether profits should be taxed where the customer is and value is created (source), or the country where the product originated (residence)…..
The OECD estimates that there could be up to $US240 billion ($325 billion) in revenue being lost due tax avoidance. But that's likely to be tied in with bigger problems such as money laundering.

How many companies with annual turnovers in excess of $250 million pay tax in Australia?


No comments: