Meetings of the G8, the G20 Finance Ministers and the Organization for Economic Cooperation and Development (OECD) in June and July of this year all focused on ways of strengthening coordination between countries in the ongoing battle to tackle tax leakage.
All these meetings contained the following three key themes.
Greater transparency in identifying and disclosing the beneficial ownership of trusts and offshore companies to the authorities i.e. police, governments and tax authorities has been made a key priority, with disclosure models like the UK’s DoTAS are also being mooted for poorer nations and tax havens. No detail on this is yet available and it will be interesting to see how differing jurisdictions will seek to implement disclosure regulations.
Over recent years most of the world’s tax havens have committed to providing information relating to wealthy foreign nationals with bank accounts or trusts in the tax haven. From the UK’s perspective this has been making significant progress, with a systematic approach being adopted, most notably in Lichtenstein, Switzerland and the Isle of Man (with others to follow).
The ultimate proposal is that information will be shared, under a single global standard for automatic exchange of information. A system has been developed by the US and Europe and it is hoped that this can be rolled out globally.
The G20 have confirmed guidance will be developed regarding the pricing of related party financial transactions, derivatives and captive and other insurance arrangements.
The key challenge identified by the G20 Finance Ministers was ‘mobile income’, which links in with transfer pricing, following on from media reports on the behaviour of various blue chip corporations such as Google, Amazon and Apple. A key challenge for regulators will be dealing with the ‘digital economy’, given a company can have a significant digital presence in a country without being subject to it’s tax laws.
The OECD published their action plan containing 15 ‘actions’ to tackle “Base Erosion and Profit Shifting”, essentially seeking to tackle instances where the interaction of different tax rules leads to double non-taxation or less than single taxation. The action plan also targets arrangements that achieve no or low taxation by shifting profits away from jurisdictions where the profits were generated.
Other areas identified by the OECD action plan were to improve the CFC rules, counter interest deduction and financial payments, prevent treaty abuse and prevent misuse of ‘permanent establishment’ and ‘management and control’ rules.
So what next?
A common theme amongst the G8, G20 and OECD plan is that the methods for achieving success in the above areas have been left vague or unspecified. As seen with the UK’s recent introduction of the highly complex GAAR, setting out the problems to be tackled is one thing, but implementing the right solution quite another. One would imagine the challenge is harder still when dealing with numerous sovereign jurisdictions, with diverging tax policies.