OECD tax action plan thrown into doubt

If one believes that governments should exert some control over the free market in some circumstances, even if only the market in drugs, it is important that governments should be able to control their own taxation policies, says Simon Sweetman.

It is clear that at the present time this is not the case. So at the eleventh hour the world is to be saved and the G20 has decided to back an OECD plan to deal with corporate tax avoidance. The snappily tilted Action Plan on Base Erosion and Profit Shifting apparently signals an intent actually to do something (though with some suspicion that the USA may not be all that keen, especially since most of the apparent targets are ultimately US corporations).

The key features seem to be a redefinition of “permanent establishment” so that...

Continued...

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Comments

Permanent Establishment...

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.
     

  • The 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.

    No change in, for example, the arm's length principle, is currently suggested.

    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.

law and information

david5541 | | Permalink

perhaps rather than fighting over THE  legal loopholes and THE offshoring used by virtually every uk company and european company- all big and small eu countries should sign up to MORE DATA SHARING BETWEEN TAX AUTHORITIES- IF THE SWISS CAN DO IT WITH hmrc OVER PRIVATE BANK DEPOSITS WHY CANT THE SAME TRANPERENCY EXIST BETWEEN NETHERLANDS AND LUXEMBOURG AND IRISH TAX AUTHORITIES AND HMRC! OVER HOLDING COMPANY /RESIDENCY STATUS FOR MULTINATIONALS!

US complaints ?

mikewhit | | Permalink

You would think the US would not complain, given that the big companies are currently avoiding paying US corporate taxes.