G20 backs OECD plan to tackle corporate tax avoidance

Finance ministers from the G20 group of leading nations have backed plans to tackle international tax avoidance, reports Nick Huber.

The plan to reform the tax system and close tax loopholes has been broadly welcomed by accountants, business and tax, although critics say it isn’t radical enough and doubt whether most of the proposals will be implemented.

World leaders agreed to reform the tax system based on a plan published...

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Comments

The way forward

Chaztax | | Permalink

I'll keep this as brief as I can. In my opinion:

  • The rise of technology has highlighted fundamental weaknesses in the very concept of permanent establishment as a basis for determining whether a non-resident company is within the scope of CT. Given the scale nowadays of "disembodied" transactions, it is inappropriate to link taxability with physical presence as, for example, s.5 (2) CTA 2009 does.
     
  • The foundation for a sound and enduring tax system must be laid by reflecting on the question of where, in principle, profits should be taxed.
     
  • If an item is produced at a cost of £20 in country A, and then sold to a customer in country B for £30, then the correct split is for the £20 cost to be taxed in country A (when the taxpaying suppliers there are paid) and ALL of the £10 profit in country B.   

    This is appropriate because the existence of the end customer is the entire raison d'être of the transaction; without a customer there is no point, from a business perspective, of making a product in the first place.
     

  • My proposal is therefore to replace P/E, as one of the basic "building blocks" of international taxation, with a system which applies CT in the destination country.

    I am not currently suggesting a change in, for example, the arm's length principle.
     

  • Many practical questions would then need to be addressed, such as the need to set appropriate thresholds to avoid imposing a disproportionate administrative burden on smaller businesses.