BEPS experts ponder uncertain future for arm’s-length principle

The arm’s-length principle for international transfer pricing continues to have widespread support, a senior OECD official told a London conference amid concerns about the effectiveness of the base erosion and profit-shifting project.

A discussion on the future of the arm’s-length principle on November 29 was hosted by the Oxford University Centre for Business Taxation, whose director Michael Devereux noted that the BEPS project has “triggered a material hike in the complexity of applying” the principle. Richard Collier, an associate fellow at the Centre for Business Taxation, warned that “a continued vulnerability to avoidance will present recurrent and profound difficulties.”

Tomas Balco, the recently appointed head of the transfer pricing unit at the OECD’s Centre for Tax Policy and Administration, offered a personal perspective of “where countries think we are” in relation to the arm’s-length principle … Noting that a previous speaker argued that the principle may not have a long-term future, Balco said feedback from delegates to the OECD’s Working Party 6 on transfer pricing suggests that “nobody thinks the patient is dying.” Read more:

My news story for Tax Analysts, December 2 ($)

How should we tax multinationals?

My Tax Analysts news story on the debate hosted by the Women in Tax network on November 20 is now free to view.

Governments considering how multinationals should be taxed must address the erosion of public trust in tax administrations, while businesses continue to stress the importance of certainty in tax matters, panellists told a conference hosted by the Women in Tax network at Pinsent Masons’s London office.

UK mulls royalty withholding tax to target digital economy

The UK government is consulting on an extension of withholding tax on royalty payments and is prepared to take unilateral action if insufficient progress is made on multilateral solutions to challenges posed by the digital economy, according to a position paper released alongside the autumn budget.

The challenge that digitisation poses for sustainability and fairness in the tax system can only be properly solved on an international basis, Chancellor of the Exchequer Philip Hammond told members of Parliament November 22. The position paper sets out the government’s emerging thinking about potential solutions, he said. “But in the meantime,” he added, “we will take what action we can.”

My news story for Tax Analysts, November 23 (paywall)

Governments must address need to restore public trust in tax, adviser says

Governments considering how multinationals should be taxed must address the erosion of public trust in tax administrations, while businesses continue to stress the importance of certainty in tax matters, panellists told a conference hosted by the Women in Tax network at Pinsent Masons’s London office November 20. Alexandra Readhead, an international tax and extractive industries consultant, said multinationals should be taxed “in a way that creates resources for public trust.”

Lizzie Arnold, a senior policy adviser at HM Treasury, outlined the UK government’s perspective on the taxation of multinationals. She described three aims, the first of which is to create a competitive corporate tax system … Giorgia Maffini, senior tax economist at the OECD, noted that residence and source are the two principles that define how multinationals are taxed. “We are trying to understand whether it’s time to think of another principle,” she said … Corporations are looking for “a bedrock of certainty” to provide stability, said Anna Elphick, vice president of tax for Asia and Africa at Unilever. Read more:

My news story for Tax Analysts, November 22 (paywall)

UK government urged to implement public country-by-country reporting

The Paradise Papers revelations show that tax avoidance has become “a scourge on our society” and illustrate the need for public country-by-country reporting, Dame Margaret Hodge told members of the UK Parliament as she led an emergency debate November 14 while the government continued to defend its record of tackling avoidance and evasion.

Hodge, chair of an all-party parliamentary group on responsible tax, said the debate was urgent because Chancellor of the Exchequer Philip Hammond was putting the finishing touches on the budget statement, scheduled for November 22. “The actions and the culture of powerful, large corporations and of the wealthiest in our society, as revealed in the Paradise Papers, constitute a national and international disgrace,” Hodge said …

The Paradise Papers have exposed a crisis of confidence, Conservative MP Nigel Mills said. “We need our tax system to be fair and our financial system to be legally compliant and as clean as we can make it.” Read more:

My news story for Tax Analysts, November 15 ($)

House of Commons debate of November 14 on tax avoidance and evasion: transcript

US excise tax proposal invites retaliation, UK tax professionals say

A US excise tax on payments to related foreign corporations is a hostile measure that may violate bilateral tax treaties and prompt retaliation, UK tax professionals warned, as they presented their initial assessment of the Tax Cuts and Jobs Act.

“It does seem to be a very interesting move by revenue authorities to build a kind of firewall within a jurisdiction, to say that you can only have a deduction to the extent that there’s a corresponding taxable amount in that jurisdiction,” said John Kilby, head of tax at Canary Wharf Group plc. “You could argue that it’s very clever of the [US] administration because it could force more jobs back to the US.”

Kilby was addressing participants at a November 6 conference on U.S. tax reform at the London office of Herbert Smith Freehills LLP. Sponsors included Tax Analysts and Sharp Partners P.A. Read more:

My news story for Tax Analysts, November 8 ($)

[Here’s an update from Jonathan Curry (free to view), published November 9.]

UK lawmakers approve corporate interest restriction

The UK House of Commons finance bill committee on October 19 approved lengthy and complex rules restricting tax relief for corporate interest, while rejecting proposals for a stricter regime for PFI companies.

The Chartered Institute of Taxation said the measure, effective from April 1, 2017, has been rushed. “It is unsatisfactory that businesses have been put in a position of having to plan for these proposals before they are enacted due to their significantly retrospective effect,” it said in an October 17 submission to the committee …

The corporate interest restriction measure in Schedule 5 occupies 156 pages of the 665-page finance bill. A series of amendments proposed by Labour member of Parliament Stella Creasy would have introduced stricter rules for PFI companies. Read more:

My news story for Tax Analysts, October 21 (paywall)