Governments around the world are working together to combat perceived international tax avoidance through more transparency. What is your opinion about these efforts?
Governments are working together in order to try to address a lot of issues that need to be addressed. There is a real and coordinated effort in order to obtain a better level of transparency. Its objectives are quite ambitious. Greater transparency can be a move in a positive direction.
However, because of its comprehensiveness, we need to be sure that the rules apply on a consistent basis. The biggest risk is that some countries are moving faster than others, and not always in the same direction, which would create serious differences. Some countries could use selectively some of the data made available through transparency without considering the entire picture.
In this context, double taxation agreements are not sufficient. In an increasingly interconnected world, we have no comprehensive mechanism to handle disputes where several countries are involved. The creation of such a mechanism should be part of the whole package.
What is your opinion about the base erosion and profit shifting (BEPS)?
BEPS is a global phenomenon which requires a global approach. National tax laws have not always kept pace with the global technology and business developments. This situation undermines the fairness and integrity of tax systems. Fifteen specific actions are being developed in the context of the OECD/ G20 BEPS Project that are intended to equip governments with the domestic and international instruments to address this challenge.
It is an ambitious project. The OECD has moved quite efficiently on some aspects. The first set of measures and reports were released in September 2014. A co-ordinated approach is very welcome. The OECD has been helpful in bringing positive solutions. In fact, we have been working with several governments on these questions.
There is one overarching issue that is a particular concern. More transparency brings more disclosure and increases the risk of more disputes. Facilitation of a better mechanism to avoid or solve disputes is an important element of the project Action 14, “Make Dispute Resolution Mechanisms More Effective”, and is an important component of the work on the BEPS issue.
Do you think that these efforts towards more transparency will increase regulation and generate new burdens and difficulties for CFOs?
The majority of the actions will impact directly on individual companies’ organisation and operating models. So they should anticipate this and plan that there will certainly be an upfront cost. But in the long term, companies should benefit if there is a more certain and predictable environment for their business. The recommended actions will give countries the tools they need to ensure that profits are taxed where the economic activities generating the profits are performed. They will also give companies greater confidence by reducing disputes over the application of international tax rules, and standardising reporting requirements. All of this holds together with co-ordination and strong dispute resolution agreements, which must be part of the package.
The OECD and the G20 are moving in the right direction. Their goals are ambitious as they try to modernise the international taxation system. Achieving consensus on fundamental tax issues among so many countries will be a major achievement. Between them, the OECD and the G20 account for 44 countries, estimated to make up around 90% of the world economy.
Base Erosion and Profit Shifting (BEPS)