Friday, October 9, 2015

"The Beps process is the most significant development ever in the history of international tax rules"

That's Irish KPMG partner Conor O’Brien in the Irish Times, who sounds more like a rainmaker than a CPA.
With the Oct. 5 release of the final OECD BEPS package and the not coincidental meeting of the G20 Finance Ministers in Lima, BEPS has been on every tongue.

From The Economist:

Corporate taxation
New rules, same old paradigmA plan to curb multinationals’ tax avoidance is an opportunity missed
IN 2013 investigators from America’s Senate shone a harsh light on a highly profitable unit of Apple that was registered in Ireland, controlled from America—and not paying tax in either country. That this “stateless-income” structure was perfectly legal highlighted a big loophole in the global system for taxing multinationals.

There are many such gaps, and the reason is that the patchwork of national rules and bilateral treaties governing how much tax companies owe, and to whom, is horribly dated. It was designed for the manufacturing age. Business today is increasingly digital, services-based and driven by intangible assets, including rights to exploit intellectual property (IP), from patents to logos. These are easier than physical assets to shuffle from subsidiaries in high-tax countries to those in low-tax ones. In short, they make the old rules easier to game.

Hence the relentless rise of tax planning as a core part of multinationals’ business plans. The OECD reckons that the resulting revenue losses to national exchequers have grown to as much as $240 billion a year, or 10% of global corporate income-tax receipts—an estimate it considers very conservative. The share of American firms’ profits that they book in low-tax havens has more than doubled since the 1980s; this has helped reduce the actual tax rates they pay, relative to their home country’s headline rate (see charts). America’s 500 largest firms hold more than $2 trillion in profits offshore. Its tax laws encourage this, because profits its companies make abroad are taxable in America only when repatriated.  

Two years ago the Group of Twenty (G20), a forum for big economies, asked the OECD to produce reforms aimed at curbing these corporate-tax gymnastics and ensuring that multinationals were taxed “where economic activities take place and where value is created”. The request was motivated in part by growing public anger over firms not paying their “fair share”, and partly by hunger for more tax revenue in an era of austerity.

The resulting “Base Erosion and Profit Shifting” (BEPS) proposals were released this week. They are the biggest shake-up of multinational taxation since the basics of the current framework were put in place in the 1920s. G20 governments are expected to approve them at a summit in November.
OECD officials were predictably upbeat as they unveiled the plan. Angel Gurría, the organisation’s secretary-general, declared that it will “put an end to double non-taxation”. Pascal Saint-Amans, the OECD’s tax chief, said it marked a “change of paradigm” that should help to make tax planning “marginal” rather than “a core part of business models” (though he accepted there was still much work to do; two years is but a blink of an eye in global tax diplomacy). The reality is less cheering: the project was flawed from the start because it was impossible to achieve consensus in favour of the radical overhaul that was needed. The result is a patch-up job that offers improvements in certain areas but fails to deal with the core problems.

Start with the good bits. Companies will be required to do more country-by-country reporting of where they really earn their revenues, hold their assets and employ people, and where they book their profits—information that is often lacking in their published accounts. This will give tax authorities (though not the public) a clearer picture of how much profit is being shuffled around for tax purposes. National tax authorities will also get more information on “comfort letters” that other countries’ taxmen have provided to companies, blessing their tax arrangements. The European Commission, the EU’s executive arm, is investigating what it suspects are unfair sweetheart deals that the Netherlands, Ireland and Luxembourg have struck with companies ranging from Starbucks to Fiat Chrysler. This week the EU countries got a head start in implementing the OECD’s reform proposals by agreeing on the automatic exchange of information on their cross-border tax rulings.
Double Irish on the rocks

Anticipating new regulations requiring greater transparency, some firms are backing away from tax practices once deemed uncontroversial. Amazon, for instance, has opened taxable branches in European countries where it has lots of customers; no longer are all its profits diverted to low-tax Luxembourg. Some companies are pre-emptively paying more tax: the Luxembourg arm of a large international bank waived a favourable tax ruling in order to raise its effective tax rate, because it feared that paying only 15% might attract negative headlines, admits one of its directors. And low-tax countries are dismantling their most invidious tax-minimisation structures, such as the notorious “Double Irish” (see next story)....MUCH MORE