Measures to increase tax transparency will bring the international tax system into the modern age, the UK government declared at the close of the G8 leaders’ summit in Northern Ireland. A new template for country by country reporting to tax authorities will give governments a new tool against tax avoidance by multinationals and will be particularly helpful to governments of developing countries, HM Treasury said.
The UK government announced in the run-up to the summit that it would establish a new register of company ownership and consult on whether the register should be made public.
'Private enterprise drives growth, reduces poverty, and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this. We will make a real difference by doing the following:
'1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion.
'2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.
'3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.
'4. Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.
'5. Extractive companies should report payments to all governments - and governments should publish income from such companies.
'6. Minerals should be sourced legitimately, not plundered from conflict zones.
'7. Land transactions should be transparent, respecting the property rights of local communities.
'8. Governments should roll back protectionism and agree new trade deals that boost jobs and growth worldwide.
'9. Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries.
'10. Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account.'
Commenting on the G8 Summit communiqué, CIOT president Stephen Coleclough said: ‘The CIOT welcomes the cooperation between governments at the G8 – this is a necessary first step in modernising the international tax system. The next step is to translate these principles and policies into tax laws in an internationally coordinated fashion which will give nations, taxpayers, businesses and investors the certainty they need to flourish and grow. We expect the work of the OECD to form an important foundation for this process.
‘We are pleased to note that developing countries will be assisted by other countries to develop their tax systems. Promoting security and other safeguards for taxpayer data around the world will be crucial as the flow of information increases’, Coleclough said.
The G8 leaders’ commitments on information exchange and beneficial ownership must be followed through, said ICAEW chief executive Michael Izza. ‘We also need to see the OECD make progress on their base erosion and profit shifting programme so that the international tax architecture reflects the way that international business now operates.’ The accountancy profession has an important role to play in implementing reform and making the new system work, he said.
Small UK businesses with foreign sales or infrastructure will be closely watching tax changes arising from the G8 pledges, said Nick Farmer, associate director at Menzies LLP. Changes could have a ‘much greater’ effect than intended. Governments would potentially have to change the definition of permanent establishment, or establish different thresholds.
‘The changes may be conceived to enable countries to tax major international internet trading business selling into their territory more readily, but will also have widespread effect on all UK businesses which have foreign sales or operations,’ he said.
The G8 had taken a step in the right direction, said Sally Copley, spokesperson for the Enough Food for Everyone IF campaign. ‘It is progress that more tax authorities will know who owns phantom firms … but a summit focused on transparency can’t justify keeping this information secret.’
Richard Murphy, director of Tax Research, who has advocated country by country reporting for 10 years, welcomed the announcement on reporting to tax authorities but repeated his call for the data to be made public.
The Financial Times noted that multinationals were ‘keen to fend off pressure for public disclosure, which they say would put commercially valuable information into the public domain’.
The G8 leaders’ communiqué (see lexisurl.com/tLq2d) included a commitment to establish automatic exchange of information between tax authorities as the new global standard. ‘It is important that all jurisdictions, including developing countries, benefit from this new standard,’ the communiqué said.
The G8 leaders agreed to publish national action plans to make information on ‘who really owns profits from companies and trusts’ available to tax authorities and financial intelligence units. ‘Shell companies can be misused to facilitate illicit financial flows stemming from corruption, tax evasion and money laundering,’ they said. In a statement of ‘common principles’ the G8 leaders advocated central registries of company beneficial ownership at national or state level. Trustees of express trusts should know the beneficial ownership of the trust, they said.
The UK government announced on 15 June that a new central registry maintained at Companies House will be accessible to law enforcement agencies and tax authorities, and the government will consult on whether the registry should be publicly accessible. It had secured agreements from all British crown dependencies and overseas territories to publish their own action plans to increase transparency of beneficial ownership.
The UK’s action plan, published on 18 June (see lexisurl.com/s4Xgu) includes a review of bearer shares and nominee directors. A pre-consultation paper will be published ‘before September’.
‘On tax avoidance, we support the OECD’s work to tackle base erosion and profit shifting,’ the communiqué said. ‘We will work to create a common template for multinationals to report to tax authorities where they make their profits and pay their taxes across the world.’
G8 leaders emphasised the importance of an ‘ambitious and comprehensive’ action plan to be developed by the OECD and presented to G20 finance ministers in July. They agreed to ‘ensure that international and our own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low tax jurisdictions’.
The communiqué promised further practical support in capacity building for developing countries. A lack of data on comparable transactions for transfer pricing is a significant issue, particularly in developing countries, the G8 leaders said: ‘We ask the OECD to find ways to address the concerns expressed by developing countries on the quality and availability of the information on comparable transactions that is needed to administer transfer pricing effectively.’
The communiqué noted that 39 countries had signed up to the Extractives Industries Transparency Initiative, and encouraged other countries to do so. The UK, US and France would seek candidacy status for the new EITI standard.
A new ‘fair tax’ campaign, which Richard Murphy launched days before the G8 summit, received wide coverage in the national press. A ‘fair tax mark’ assessed 25 British retailers on three criteria, including whether they paid ‘an acceptable rate of tax’ on profits. The British Retail Consortium dismissed the analysis as ‘narrowly focused and oversimplified’, the FT reported.
A decision to exclude deferred tax in assessing a company’s tax record was ‘highly dubious’, said Ben Saunders in a personal blog. Saunders is a business manager at Tolley Tax, part of Tax Journal publisher LexisNexis.
Asked whether he was effectively treating capital allowances as tax avoidance, by ignoring both deferred tax and any related capital allowances, Murphy told Tax Journal: ‘No, of course we are not treating capital allowances as avoidance.’
The use of average tax rates over a period of six years compensated for the exclusion of deferred tax, he suggested, recognising that deferred tax ‘reverses out’ over time. A note on the Fair Tax Campaign website said: ‘Since deferred tax is all about timing we think our approach is fairer. We are looking at actual payments over an extended period where timing differences should be less significant …’
But Saunders told Tax Journal that the researchers had weighted their averages ‘in order to magnify the effect of certain years’. They had also failed to weight the average for magnitude of profit. ‘Any natural smoothing of the tax rate over time will be distorted,’ he said.
Measures to increase tax transparency will bring the international tax system into the modern age, the UK government declared at the close of the G8 leaders’ summit in Northern Ireland. A new template for country by country reporting to tax authorities will give governments a new tool against tax avoidance by multinationals and will be particularly helpful to governments of developing countries, HM Treasury said.
The UK government announced in the run-up to the summit that it would establish a new register of company ownership and consult on whether the register should be made public.
'Private enterprise drives growth, reduces poverty, and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this. We will make a real difference by doing the following:
'1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion.
'2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.
'3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.
'4. Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.
'5. Extractive companies should report payments to all governments - and governments should publish income from such companies.
'6. Minerals should be sourced legitimately, not plundered from conflict zones.
'7. Land transactions should be transparent, respecting the property rights of local communities.
'8. Governments should roll back protectionism and agree new trade deals that boost jobs and growth worldwide.
'9. Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries.
'10. Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account.'
Commenting on the G8 Summit communiqué, CIOT president Stephen Coleclough said: ‘The CIOT welcomes the cooperation between governments at the G8 – this is a necessary first step in modernising the international tax system. The next step is to translate these principles and policies into tax laws in an internationally coordinated fashion which will give nations, taxpayers, businesses and investors the certainty they need to flourish and grow. We expect the work of the OECD to form an important foundation for this process.
‘We are pleased to note that developing countries will be assisted by other countries to develop their tax systems. Promoting security and other safeguards for taxpayer data around the world will be crucial as the flow of information increases’, Coleclough said.
The G8 leaders’ commitments on information exchange and beneficial ownership must be followed through, said ICAEW chief executive Michael Izza. ‘We also need to see the OECD make progress on their base erosion and profit shifting programme so that the international tax architecture reflects the way that international business now operates.’ The accountancy profession has an important role to play in implementing reform and making the new system work, he said.
Small UK businesses with foreign sales or infrastructure will be closely watching tax changes arising from the G8 pledges, said Nick Farmer, associate director at Menzies LLP. Changes could have a ‘much greater’ effect than intended. Governments would potentially have to change the definition of permanent establishment, or establish different thresholds.
‘The changes may be conceived to enable countries to tax major international internet trading business selling into their territory more readily, but will also have widespread effect on all UK businesses which have foreign sales or operations,’ he said.
The G8 had taken a step in the right direction, said Sally Copley, spokesperson for the Enough Food for Everyone IF campaign. ‘It is progress that more tax authorities will know who owns phantom firms … but a summit focused on transparency can’t justify keeping this information secret.’
Richard Murphy, director of Tax Research, who has advocated country by country reporting for 10 years, welcomed the announcement on reporting to tax authorities but repeated his call for the data to be made public.
The Financial Times noted that multinationals were ‘keen to fend off pressure for public disclosure, which they say would put commercially valuable information into the public domain’.
The G8 leaders’ communiqué (see lexisurl.com/tLq2d) included a commitment to establish automatic exchange of information between tax authorities as the new global standard. ‘It is important that all jurisdictions, including developing countries, benefit from this new standard,’ the communiqué said.
The G8 leaders agreed to publish national action plans to make information on ‘who really owns profits from companies and trusts’ available to tax authorities and financial intelligence units. ‘Shell companies can be misused to facilitate illicit financial flows stemming from corruption, tax evasion and money laundering,’ they said. In a statement of ‘common principles’ the G8 leaders advocated central registries of company beneficial ownership at national or state level. Trustees of express trusts should know the beneficial ownership of the trust, they said.
The UK government announced on 15 June that a new central registry maintained at Companies House will be accessible to law enforcement agencies and tax authorities, and the government will consult on whether the registry should be publicly accessible. It had secured agreements from all British crown dependencies and overseas territories to publish their own action plans to increase transparency of beneficial ownership.
The UK’s action plan, published on 18 June (see lexisurl.com/s4Xgu) includes a review of bearer shares and nominee directors. A pre-consultation paper will be published ‘before September’.
‘On tax avoidance, we support the OECD’s work to tackle base erosion and profit shifting,’ the communiqué said. ‘We will work to create a common template for multinationals to report to tax authorities where they make their profits and pay their taxes across the world.’
G8 leaders emphasised the importance of an ‘ambitious and comprehensive’ action plan to be developed by the OECD and presented to G20 finance ministers in July. They agreed to ‘ensure that international and our own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low tax jurisdictions’.
The communiqué promised further practical support in capacity building for developing countries. A lack of data on comparable transactions for transfer pricing is a significant issue, particularly in developing countries, the G8 leaders said: ‘We ask the OECD to find ways to address the concerns expressed by developing countries on the quality and availability of the information on comparable transactions that is needed to administer transfer pricing effectively.’
The communiqué noted that 39 countries had signed up to the Extractives Industries Transparency Initiative, and encouraged other countries to do so. The UK, US and France would seek candidacy status for the new EITI standard.
A new ‘fair tax’ campaign, which Richard Murphy launched days before the G8 summit, received wide coverage in the national press. A ‘fair tax mark’ assessed 25 British retailers on three criteria, including whether they paid ‘an acceptable rate of tax’ on profits. The British Retail Consortium dismissed the analysis as ‘narrowly focused and oversimplified’, the FT reported.
A decision to exclude deferred tax in assessing a company’s tax record was ‘highly dubious’, said Ben Saunders in a personal blog. Saunders is a business manager at Tolley Tax, part of Tax Journal publisher LexisNexis.
Asked whether he was effectively treating capital allowances as tax avoidance, by ignoring both deferred tax and any related capital allowances, Murphy told Tax Journal: ‘No, of course we are not treating capital allowances as avoidance.’
The use of average tax rates over a period of six years compensated for the exclusion of deferred tax, he suggested, recognising that deferred tax ‘reverses out’ over time. A note on the Fair Tax Campaign website said: ‘Since deferred tax is all about timing we think our approach is fairer. We are looking at actual payments over an extended period where timing differences should be less significant …’
But Saunders told Tax Journal that the researchers had weighted their averages ‘in order to magnify the effect of certain years’. They had also failed to weight the average for magnitude of profit. ‘Any natural smoothing of the tax rate over time will be distorted,’ he said.
