Prepared by the ICC Commission on Taxation, the statement ‘Exit taxes: Serious obstacles for international business restructurings and movements of capital’, was adopted by ICC’s Executive Board at its 144th session in Geneva and is a revised version of the 2006 statement of the same name.
“The international taxation environment has changed due to the financial deficits faced by national governments while global business models have evolved in the face of competitive pressures,” said Christian Kaeser, Global Head of Tax, Siemens AG and Chair of the ICC Commission on Taxation. “While the international community is currently debating a fundamental restructuring of the international taxation system, we see that as a means to increase their revenues more countries are considering levying additional taxes, such as exit taxes. These taxes increase the risk of double taxation and thereby negatively impact investment and growth at a time when economic recovery is still fragile.”
The revised policy statement acknowledges such developments, most notably the Organization for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting Project initiated by the G20. It also makes reference to the 2013 OECD Transfer Pricing Guidelines and the OECD Model Income Tax Treaty.
The ICC statement strongly advises against exit taxes regimes which generally seek to tax unrealized gains the moment a company’s seat or assets leave the country. Instead it encourages States to find means to protect their tax bases using existing and the generally accepted tax rules to tax the recapture of previously tax deductible amortization or depreciation, without resorting to additional exit taxes.
If such regimes are nevertheless enacted, ICC emphasizes that at minimum, certain safeguards should be included to protect the free movement of capital and the efficient functioning of enterprises, in the interest of avoiding excessive or double taxation.
ICC offers recommendations for minimum standards in the design and application of such measures that would take into account the “arm’s length” principle and avoidance of double taxation. Furthermore, the revised policy statement suggests that where the levy of exit taxes is appropriate, taxpayers should have the possibility to provide adequate guarantees to cover the future tax claim.