Summary: APPG Responsible Tax - Tuesday 14 June 2016

The APPG heard from Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration, about BEPS, and Paul Morton, RELX, about the taxation of the digital economy.

This was the final session in the APPG’s inquiry into the OECD’s work on base erosion and profit shifting (BEPS) and how international tax should change to respond to global corporations and the digital economy.

Saint-Amans outlined what he sees as the three main pillars of the international tax agenda at the moment. The first was transparency and he said that the OECD was not surprised at the scale of tax avoidance outlined in the ‘Panama papers leak’ stating that it has warned Panama about its use as a tax haven.  The second pillar was BEPS and the OECD is under pressure from the G20 to level the playing field and be more inclusive so that developing countries benefit from new international tax agreements. The final pillar is the need for emphasis on tax policy to reduce inequality and help growth which ‘economists have failed to do’.

He was asked by Hodge about the level of cooperation from the British Virgin Islands (BVI). Saint-Amans said BVI has improved the standard of information it collects but is ‘struggling’ with a register of beneficial ownership. He went on say in terms of tax information collection in general ‘we are in a much better position than 10 years ago’ but the OECD has ‘doubts’  on how information on tax such as beneficial ownership is being gathered and maintained. He is pinning hopes on the Common Reporting Standard to ‘change the behaviour’.

The Frenchman was sure that BEPS is more than the ‘sticking plaster’ Hodge implied, stating that he read an article in The Financial Times that showed ‘Wall Street warning there will be an impact on profits [as a result of BEPS] … I knew it was having an impact’.

The representative of OECD told Hodge that while BEPS may have created more uncertainty rather than complexity, it is not creating new opportunities for people to tax plan but in fact be more conservative and cautious in their approach to taxation. “We have raised the bar to where it should be”, he said.

He said BEPS is to bridge the gap between 'sovereignties' (countries) and was cool on the idea of creating arbitration too quickly if governments are anxious about it.

Asked by Hodge about public Country by Country (CbC) reporting, Saint-Amans was pragmatic by stating that it is not a priority because the large export countries said they did not want it.

Asked by Chas Roy-Chowdhury, head of taxation at ACC about the USA, Saint-Amans admitted that ‘Delware is a major problem’, specifically that people can set up a foreign owned limited liability company, not pay local taxes and then avoid stating who the beneficial owner of a company is. However, he is optimistic about change because the USA has tabled a draft regulations to fix the Delaware problem before the Presidential election.

On BEPS Action 14, he said it will have teeth when it comes to dealing with double taxation.

Other matters he informed the attendees about was the lack of an international consensus on tax competition which he did not have an opinion about and that a public register of beneficial ownership is not ‘the solution’ to tax havens, preferring to focus on improving the quality of information that tax agencies are collating and sharing first of all. An audience member from Tax Justice Network told Saint-Amans that he believes his views on public registers is ‘the wrong way around’. The OECD representative added that the patent box is not a good use of the tax base.

Paul Morton only had a few moments to speak about tax and the digital economy because the meeting was half-an-hour late in starting.  Morton opened by making that point that the whole economy is now digitalised and this must be taken into account when forming tax solutions to the digital economy.  He was reluctant to see an immediate change to the taxation of digital economy because he agreed with the OECD that we must see how the digital economy changes in the coming years to 2020. He warned against countries creating unilateral laws to tax the digital economy – such as India has done with its digital tax – because that leads to double taxation. He said the OECD’s framework for tackling profit shifting can inform the treatment of the digital economy. Morton defended the ‘secrecy’ around the HMRC settlement with Google when asked by Hodge. He said that the ‘depth of information’ about companies that tax authorities may ask to know to reach settlements, such as value chains, organisational structure and people’s job descriptions are confidential, especially to rival companies.  He said business have confidence in HMRC to understand and to be fair when assessing transfer pricing.

A handout at the event reminded attendees of the PPG’s inquiry into the capacity and capabilities of HMRC. A public consultation into its terms of reference is open until 21 June 2016.

By Hamant Verma, External Relations Officer, the Chartered Institute of Taxation