While underscoring the importance of a coordinated and consistent approach to tax law changes, ICC continues to fully engage with the G20- and OECD-mandated BEPS project as the debate over tax planning and business paying its ‘fair share’ of taxation has reached the highest levels of government and public debate.
Focusing on 15 areas of work, the project addresses tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or shift profits to locations where there is little or no real activity. Launched in July 2013 and expected to be completed by December 2015, outcomes of the BEPS project are anticipated to have significant effects on business activity, increasing the need to disentangle the complexities of new requirements and to reconsider models of international business.
Last week, speaking on behalf of enterprises from all sectors in every part of the world, ICC submitted its feedback on the first Discussion Drafts issued by the OECD in the second phase of the BEPS project. The comments relate to the prevention of treaty abuse, the artificial avoidance of Permanent Establishment status and potential modifications of transfer pricing guidelines on low value-adding intra-group services.
ICC applauds the G20 approach to modernize international tax rules and strongly believes harmonized, transparent and predictable tax regimes are key for economic growth. While ICC fully concurs that tax fraud and tax evasion should be stopped, it contends that this should be clearly distinguished from legal tax management and planning. Moreover, businesses fear that governments might be too focused on combating tax evasion while losing sight of the fact that the wider business community is not engaged in abusive practices and may suffer collateral damage.
ICC strongly cautions against countries taking unilateral action before the BEPS project has successfully been concluded and consensus has been reached.
Noting the extremely ambitious timeframe of the BEPS project, ICC is concerned that insufficient attention is being given to the necessary analysis and study of the repercussions of potential changes to the international tax infrastructure. This is illustrated by the limited narrative examination and/or concrete suggestions offered by the OECD in several of the recently issued BEPS Discussion Drafts. Failure to conduct the necessary due diligence and dialogue with stakeholders will result in faulty rules, creating difficulties for businesses and significantly hampering cross-border trade and economic growth.
It remains very important that phase one and phase two deliverables of the G20/OECD BEPS Action Plan are implemented in a coordinated and consistent manner to prevent disparate rules and double taxation
Paul Morton, Vice-Chair of the ICC Commission on Taxation and ICC’s OECD/BEPS project focal point, said: “ICC strongly cautions against countries taking unilateral action before the BEPS project has successfully been concluded and consensus has been reached. ICC therefore shares the concerns expressed by many stakeholders that the proposed Diverted Profits Tax in the United Kingdom, for example, seems to have been put forward at a rather early stage in the process. That said, the constructive engagement of UK authorities with business on the OECD/BEPS project and the Diverted Profits Tax itself is welcomed.”
It will be crucial for both OECD member states and non-members to reach agreement on the project’s outcomes to avoid inconsistencies and conflicts between the national tax legislation of different countries and to reduce double taxation. ICC encourages the OECD to engage with non-OECD members to obtain further commitment on a common approach in order to not stifle cross-border trade and economic growth.
The ICC Commission on Taxation comprises more than 150 taxation experts from companies and business associations in approximately 40 countries from different regions of the world and across all economic sectors. Its mandate is to promote transparent and non-discriminatory treatment of foreign investment and earnings that eliminates tax obstacles to cross-border trade and investment. The commission analyses developments in international fiscal policy and legislation and puts forward business views on government and intergovernmental projects affecting taxation.