Recent headlines might lead you to think that the only thing
that interests multinational business is dodging taxes, and the
only thing that interests governments is maximising the tax
yield. The perception that low and middle income individuals
are facing increasing taxes at a time when big multinationals
are not contributing their fair share has become a political
problem now identified by the G20.
But how can we move beyond the headlines and come up with an
accurate analysis of the problem and appropriate solutions? Put
slightly differently, how can we move beyond entrenched
adversarial positions and work towards the common goal of a
stronger, more balanced tax system, in which the public may be
able to trust?
The world economy has changed profoundly and at an
increasingly rapid pace over the past few decades. Big
companies have globalised and have been able to thrive in a
context where national tax sovereignty remains the rule. Beyond
the cases of evasion and clear abuse, changes in business
practices brought about by globalisation (for example, relating
to risk-management and intellectual property) have raised more
complex questions among governments about whether the domestic
and international rules on the taxation of cross-border profits
have kept pace with those changes.
Double non-taxation, or stateless income, is no more
acceptable as an economic matter than double taxation. This is
clearly true for governments, in particular at a time when many
of them face severe revenue constraints. However, double
non-taxation is harmful to business too: it gives competitive
advantages to some players thus distorting the level playing
field. Business should compete on commercial grounds not on
aggressive tax planning.
At the same time, the removal of exchange controls and,
again, globalisation, have led countries to compete for
investment by means of incentives in the tax system. The result
is an increasingly unstable international tax system. Tax is a
cost which businesses legitimately seek to control, and they
should not be blamed for taking up legal incentives offered by
competing governments. But these incentives have themselves
caused the international tax system to become less stable and
that is to the advantage of neither governments, nor
businesses, nor economic growth.
Today the OECD has published a note responding to a request
from the G20 to report on what might be done to prevent Base
Erosion and Profit Shifting (BEPS). This note does not propose
solutions, but rather a framework within which the necessary
work can be done to pinpoint what problems actually exist, and
then propose solutions to those problems. The OECD is committed
to reaching out to as wide a group of countries as possible,
not just the "rich world club". There must be a solution which
has widespread international backing.
BIAC completely supports this effort. Business does believe
that tax is a question of law; not morality. But it also
recognises that the public must have confidence that business'
interpretation of the tax law is reasonable and proportionate.
Business agrees that in a globalised world it should be
transparent with governments, and that governments should be
transparent with each other through exchange of information.
And, business agrees that it is legitimate - even necessary -
to ask whether the substance of transactions and their taxation
have diverged in certain cases.
So, all aspects of the current system should be examined and
if rules need changing - as some may well do - then the rules
should be changed. But, we also will still live in a highly
competitive world, so if rules are changed, that must be done
on the broadest possible international basis in the G20 and
beyond, so that no national or industry sectors gain an unfair
"free-rider" advantage that would almost immediately trigger
another competitive struggle.
The headlines point to a worsening - almost Manichean -
struggle between governments and businesses over tax, but, in
fact, we in the OECD and many in the business community
continue to focus on cooperative action to move forward, rather
than taking adversarial positions, and designating scapegoats
without tackling the issues. After all, we both strongly
believe in tax compliance. We both think that incremental
progress can be made to improve certainty for business, ensure
the elimination of double taxation, and align the locations of
actual business activity and the locations where profits are
reported for tax purposes. We also both believe that revisiting
the rules, which were designed in a different world economy,
should not be a taboo.
To be sure, most businesses generally like to pay less tax,
and most governments generally like to collect more. But if we
work together, and with other stakeholders, we believe we can
rebuild public trust and find the right balance between
the goals of fostering economic growth and jobs and of allowing
governments to protect their tax bases and raise the tax
revenue they deem appropriate.