OECD states BEPS initiative 'on track' but multinationals wary of compliance cost
The G20 has reiterated its commitment to bring about seismic change to global taxation again this year, but despite Australia PM Tony Abbott's accusation that the 2013 G20 meeting was merely a "talkfest" on tax, he is in danger of 2014's meetings becoming the same. Whilst the OECD remains confident in its global tax reforms, and authorities around the world publicise their successes against tax evaders, it seems the G20 is in danger of being all bark, with only individual nations having any bite.
National tax authorities are increasingly and aggressively investigating businesses' tax structures. Last month, the UK's HMRC claimed that its crackdown on corporate tax avoidance has reduced the risk to the taxman from two aggressive forms of tax planning by nearly £2bn in the last year. In China, thanks to a similar public outcry as seen in the West against corporate tax evasion, the State Administration of Taxation has reported that they have brought in 46.9 billion Yuan of additional taxes in 2012 – 38 times more than 2008.
This open show of return to the public purse is in stark contrast to the progress of the G20 which, since the first meetings in Sydney in February, has announced very few specifics on how the G20 nations plan to tackle international tax in the coming year.
Outside of this year's G20 meeting, there are some tangible global tax changes underway, albeit they are making somewhat slow progress. We have heard this week that the OECD's BEPS initiative is "on track", primarily focused on establishing new country-by-country reporting requirements so as to more effectively target tax audits, however – whilst agreed by the G8 in principle – it's yet to be established how global implementation will work. Moreover the cross-border automatic exchange of information initiative that will be adopted by 44 countries by 2017, is another example of a cumbersome initiative that will take time to instigate. While both will, eventually, help the fight against unlawful tax structures, they are also fuelling an escalating burden of compliance costs for the vast majority of multinationals who continue to fulfil their tax obligations.
At a national and global level, politicians have used a tax morality rhetoric to garner public support. At the same time they have implemented national level tax breaks and incentives to court multinationals, while giving tax collectors increasingly aggressive powers; from introducing retrospective legislation, to ruling that disputed tax be paid upfront and subsequently returned if the tax planning is found to be legitimate. The inconsistency between global prose and national policy has proved problematic for business leaders, as illustrated in Taxand's recent global survey of multinational CFOs, where nearly three quarters (74%) of respondents said that the regular political discussion around potential new tax measures is causing confusion and uncertainty amongst business decision makers.
As the G20 countries come under increasing pressure to deliver real action and less talk, it seems that only individual countries can implement change in their hunt for more tax revenues.