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)

UK government ‘disappointed’ at lack of progress on public country-by-country reporting

The UK government is disappointed at a lack of progress toward international agreement on public country-by-country reporting of profits and taxes, Prime Minister Theresa May told MPs.

Labour MP Caroline Flint asked during a July 10 House of Commons debate on the G-20 summit what progress the government had made on public CbC reporting. She noted that in June 2016 David Gauke, then financial secretary to the Treasury, told MPs that “if we have not made progress by this time next year on reaching a multilateral agreement, we will need to look carefully at the issue once again.”

“We regularly raise that issue, and we are disappointed at the lack of progress on it,” May replied.

Flint’s intervention followed an annual meeting of the all-party parliamentary group on responsible tax, where Labour MP Margaret Hodge was re-elected as chair. “We are well-resourced this time,” Hodge said of the cross-party group, which was formed in 2015. Read more:

My news story for Tax Analysts, July 12 (paywall)

Tax experts ‘shaped’ transparency debate, campaigners told

Business tax experts’ dominant role in consultations on measures to counter base erosion and profit shifting shaped a key debate on tax transparency, raising questions about inclusiveness and the formulation of policy, according to research presented to the Tax Justice Network.

Professionals played a central role in shaping the BEPS policy environment and process, according to a draft research paper presented by Rasmus Christensen, PhD fellow at Copenhagen Business School, at the Tax Justice Network’s annual conference in London July 5.

Christensen concluded that, operating within a technical policy environment “far removed” from high-level politics, “professionals seeking to make their mark on new standards for corporate tax transparency mobilised expertise and network capital, shaping what could be discussed, the criteria for accepted arguments, and who was listened to in the policy process, thus critically affecting the final policy outcomes.” His investigation is part of the Horizon 2020 program COFFERS, an EU-funded collaboration of universities and civil society organisations. Read more:

My news story for Tax Analysts, July 7 (paywall)

Rasmus Christensen’s draft paper: Professional Competition in Global Tax Reform: Transparency in Global Wealth Chains

Tax professionals call on U.K. government to help dispel avoidance ‘myths’

HM Revenue & Customs and politicians could do more to educate the public about tax and dispel “misleading impressions” about tax avoidance given by media reports, the Chartered Institute of Taxation has told the All Party Parliamentary Group on Responsible Tax.

The idea that there is a large “pot of gold” that could have reduced the need for austerity measures is a myth, the CIOT said, adding that “the concept that HMRC has failed to raid this non-existent pot is a fundamental misreading of reality.”

An APPG consultation was launched in September to consider HMRC’s ability to fight tax avoidance and evasion …

Read more: My news story for Tax Analysts, 26 October (paywall).

UK lawmakers question OECD as forum, urge tax transparency push

A continuing lack of transparency in the UK’s overseas territories and crown dependencies will significantly hinder efforts to curb global corruption, and more must be done to ensure that developing countries’ voices are heard on international tax reform, according to a cross-party committee of members of Parliament.

The International Development Committee welcomed the work done by the OECD through its flagship base erosion and profit-shifting project. “However, international tax discussions must be fully reflective of international concerns, including those of developing countries, and we remain concerned that the OECD – due to its composition – is not adequately reflecting the needs of the poorest countries in its policy outcomes,” the committee said in a report titled “Tackling Corruption Overseas,” published October 19.

Read more: My news story for Tax Analysts October 20 (paywall).

Tax experts criticise penalty proposals amid UK tax avoidance rhetoric

UK government proposals to penalise enablers of tax avoidance schemes could prevent some taxpayers from getting expert advice on complicated issues, according to the Chartered Institute of Taxation. The proposed penalties should be better targeted at those who deliberately seek to profit from avoidance, CIOT said in an October 12 press release.

Separately, Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales, has warned that politicians have unfairly singled out accountants in their criticism of professional advisers over avoidance.

Read more: My news story for Tax Analysts, October 13 (paywall).