BEPS and the UK

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Tax Journal’s evening debate on ‘Base erosion & profit shifting (BEPS) and the UK (Thursday 19 June) was well attended by tax specialists in industry and practice – hardly surprising for a hot topic. ‘David Cameron announced ‘Wake up and smell the coffee,’’ said chair James Bullock of Pinsent Mason. As a result, the UK was playing a pivotal role in the biggest transformation of tax rules for 30 years. The OECD’s BEPS project had G20 sponsorship; 40 countries were involved and change was definitely happening.

David Gauke, exchequer secretary to the Treasury, wanted global rules that aligned tax with economic substance. The UK tax system would be competitive within that framework. Already, the government had reduced corporation tax, introduced a patent box and R&D tax credits, and modernised the CFC rules. MNCs had been attracted into the UK.

G20 finance ministers would discuss the first tranche of OECD recommendations at a summit in September 2014. This included transfer pricing documents, country by country reporting (CbCR) of tax, the digital economy and features of a multilateral instrument that would sit alongside double tax agreements. Mike Williams of HM Treasury said EU VAT law proved that both consensus and the use of a multilateral instrument were achievable.

2015 would bring recommendations on permanent establishments, interest deductibility, CFCs, harmful tax practices, dispute resolution and trickier areas of transfer pricing, such as intellectual property.

Williams believed the existing international tax framework coped successfully with transactions between high tax countries. It only needed modernising where tax havens were involved.

Gauke had no problem with profits arising in tax havens if there was real commercial substance. Williams gave reinsurance in Bermuda as an example. John Watson, former head of tax at Ashurst, wondered if the political debate would stop there. Starbucks had put true economic substance into tax havens, he pointed out.

Paul Morton, head of group tax at Reed Elsevier, commended HM Treasury and HMRC on the deep and constructive dialogue developed in the consultation process. The OECD, too, had made herculean efforts to consult. In fact, the OECD’s Kate Ramm referred to 1,400 pages of responses received by the OECD on CbCR alone. ‘CbCR could be a game changer,’ Williams said.

Morton cautioned that nobody yet knew how tax authorities would use CbCR. HMRC kept data confidential; not all tax authorities could be trusted to do so.

While the Congressional stalemate gave rise to concern over the US administration’s ability to implement the OECD’s recommendations, Williams pointed out CbCR at least did not require Congressional approval and would be implemented. Gauke was confident that CbCR would be finalised in the UK by May 2015, even if not enacted.

Morton stressed the need for a practical tax system and said the BEPS project was not a panacea for the world’s tax problems. Many issues that exercised the tax profession would still remain. Furthermore, Philip Baker QC suggested the project was geared towards richer nations. Developing countries outside the OECD and G20 might prefer to use VAT to raise revenues.

Despite concerns, Morton agreed with Bullock that this was a chance to construct a 21^stcentury tax system. Developments were eagerly awaited.

Left to right: John Watson (former head of tax at Ashurst); Philip Baker QC (barrister, Gray’s Inn); Paul Morton (head of group tax, Reed Elsevier); Kate Ramm (senior adviser on BEPS, The OECD); Mike Williams (director, business and international tax, HM Treasury); and David Gauke MP (exchequer secretary to the Treasury),

Reported by Helen Blenkinsop. Helen has headed the tax function at two FTSE PLCs, and carries out in-house interim assignments, often focused on international tax. Email: helenblenkinsop@blueyonder.co.uk; tel. 07967 467014.