There is widespread agreement that some form of international consensus is needed to update the international corporate tax framework, says Deloitte’s head of tax policy
Leading tax professionals have welcomed the OECD’s call for international efforts to address ‘profit shifting’ by multinationals and ‘reinforce the integrity of the global tax system’.
Patrick Stevens, president of the Chartered Institute of Taxation, said: ‘We have been saying for a long time that the international corporate tax system is designed for the mid-20th century trading economy rather than the e-enabled world of seamless multinationals we now find ourselves in. The system needs to change and adapt and that is difficult for individual countries to do: it needs bodies such as the OECD to take a lead. We welcome this report as a constructive move by the OECD and a start to a more focused debate.
‘Transfer pricing based on arm’s length prices has its difficulties, especially when it comes to measuring what is the correct value which should be attached to something intangible like brand value. However the underlying principle, that profit should be taxed in the country where it is generated, is a sound one.
‘Developed countries can help developing countries improve their ability to collect taxes by helping them develop robust and capable tax authorities, as well as providing broader support for measures to improve governance and strengthen the rule of law.’
Bill Dodwell, head of Deloitte’s tax policy group, said: ‘There’s widespread agreement that some form of international consensus is needed to update the international corporate tax framework; the OECD is best-placed to lead the development of new approaches to taxation.
‘Implementing a new framework may require a global convention to override the many thousands of existing double tax treaties – renegotiating these bilaterally could take many years.
‘The next steps will be to identify the scale of the problem and then to work on new solutions, which are practical for both tax authorities and business to implement. The key to developing a new framework will be the willingness of major economies to adopt approaches which may in some cases act to their detriment. US technology companies have leading positions in the development of internet-based commerce and US agreement to new approaches will be fundamental.’
Dodwell added that it was ‘important to note that corporate tax ultimately feeds through to a company’s customers, employees and shareholder (which often include employee pension funds)’.
Ben Jones, tax expert at the law firm Eversheds, said: ‘Probably the biggest issue facing governments is the current fragmented and inconsistent approach to agreeing international rules and laws, which has to date largely depended upon any two countries agreeing the tax treatment of their citizens' and businesses' activities in their respective territories.
‘Such agreements are intended to be based upon an international standard (developed by the OECD), but in practice can vary largely, often depending upon the bargaining power of the countries involved. Such agreements also typically take many years to agree or amend and, when finalised, often represent a compromise with neither country achieving all its objectives.
‘Against this backdrop, the OECD's suggestion of a multi-lateral convention that harmonises the rules on international taxation is revolutionary and potentially presents the best opportunity to effect real change to the taxation of multinational businesses.
‘However, the proposal will truly test the political will to effect change (as well as potentially revealing the position of multinational businesses on this issue). History has demonstrated that agreements between nations with competing interests and internal pressures can take a long time and in many cases ultimately fail, with issues of taxation and tax sovereignty often proving to be among the more sensitive matters for nations to agree on.’
Richard Woolhouse, head of tax and fiscal policy at the CBI, said: ‘In some cases the last time business tax rules were updated was in the 1960s and 1970s, reflecting an era of national-based firms.
‘That’s why the tax system needs to be updated for the global and digital age. The UK must continue to work together with other countries through the OECD to update these rules, particularly on transfer pricing and intangibles, such as intellectual property.’
There is widespread agreement that some form of international consensus is needed to update the international corporate tax framework, says Deloitte’s head of tax policy
Leading tax professionals have welcomed the OECD’s call for international efforts to address ‘profit shifting’ by multinationals and ‘reinforce the integrity of the global tax system’.
Patrick Stevens, president of the Chartered Institute of Taxation, said: ‘We have been saying for a long time that the international corporate tax system is designed for the mid-20th century trading economy rather than the e-enabled world of seamless multinationals we now find ourselves in. The system needs to change and adapt and that is difficult for individual countries to do: it needs bodies such as the OECD to take a lead. We welcome this report as a constructive move by the OECD and a start to a more focused debate.
‘Transfer pricing based on arm’s length prices has its difficulties, especially when it comes to measuring what is the correct value which should be attached to something intangible like brand value. However the underlying principle, that profit should be taxed in the country where it is generated, is a sound one.
‘Developed countries can help developing countries improve their ability to collect taxes by helping them develop robust and capable tax authorities, as well as providing broader support for measures to improve governance and strengthen the rule of law.’
Bill Dodwell, head of Deloitte’s tax policy group, said: ‘There’s widespread agreement that some form of international consensus is needed to update the international corporate tax framework; the OECD is best-placed to lead the development of new approaches to taxation.
‘Implementing a new framework may require a global convention to override the many thousands of existing double tax treaties – renegotiating these bilaterally could take many years.
‘The next steps will be to identify the scale of the problem and then to work on new solutions, which are practical for both tax authorities and business to implement. The key to developing a new framework will be the willingness of major economies to adopt approaches which may in some cases act to their detriment. US technology companies have leading positions in the development of internet-based commerce and US agreement to new approaches will be fundamental.’
Dodwell added that it was ‘important to note that corporate tax ultimately feeds through to a company’s customers, employees and shareholder (which often include employee pension funds)’.
Ben Jones, tax expert at the law firm Eversheds, said: ‘Probably the biggest issue facing governments is the current fragmented and inconsistent approach to agreeing international rules and laws, which has to date largely depended upon any two countries agreeing the tax treatment of their citizens' and businesses' activities in their respective territories.
‘Such agreements are intended to be based upon an international standard (developed by the OECD), but in practice can vary largely, often depending upon the bargaining power of the countries involved. Such agreements also typically take many years to agree or amend and, when finalised, often represent a compromise with neither country achieving all its objectives.
‘Against this backdrop, the OECD's suggestion of a multi-lateral convention that harmonises the rules on international taxation is revolutionary and potentially presents the best opportunity to effect real change to the taxation of multinational businesses.
‘However, the proposal will truly test the political will to effect change (as well as potentially revealing the position of multinational businesses on this issue). History has demonstrated that agreements between nations with competing interests and internal pressures can take a long time and in many cases ultimately fail, with issues of taxation and tax sovereignty often proving to be among the more sensitive matters for nations to agree on.’
Richard Woolhouse, head of tax and fiscal policy at the CBI, said: ‘In some cases the last time business tax rules were updated was in the 1960s and 1970s, reflecting an era of national-based firms.
‘That’s why the tax system needs to be updated for the global and digital age. The UK must continue to work together with other countries through the OECD to update these rules, particularly on transfer pricing and intangibles, such as intellectual property.’
