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IFA looks towards the final frontier

The International Fiscal Association (IFA) conference in Seoul has concluded and the organisation can start looking towards next year’s congress and the topic of space tax.

This year’s congress looked at withholding taxes, the digital economy and the impact of the general anti-avoidance rule (GAAR). As the congress attendees fly back from South Korea, IFA can turn its attention towards September 2019, when the 73rdcongress will be coming to London, and the plans are already in motion.

“The technical programme has been shaped partly by [London’s] role as a global financial centre,” IFA President Murray Clayson told International Tax Review. “So, there will be some focus on interest deductibility and how it has been reformed as part of BEPS Action 4 and the other central topic will be investment funds.”

Though the future of the UK as a financial hub is the main area that the conference will address, the menu of seminars includes how taxing rights will work in space. “It sounds a bit crazy, but a lot of preparatory work has already been done on this,” Clayson said.

This may sound like a highly speculative area. However, this is the era of Elon Musk and his company’s efforts to make space travel commercially viable. Such initiatives as Space X are taxable by traditional means on Earth, but one day this might not be the case.

It’s possible to imagine a future situation where a company manages its intra-group transactions in space and it’s difficult to see how a national government would justify taxing such an exchange. Tax advisers have suggested that the prospects of such transactions could be a new VAT loophole.

This may seem like a distant prospect today, but the problem of taxing rights in space is a similar dilemma to taxing the high-tech economy. Any business model that moves away from the conventional idea of a presence will naturally raise difficulties for tax policy.

“There are critical questions to answer, such as who owns, and thus which country can tax, the mineral resources. How would a terrestrial jurisdiction tax commercial activity outside Earth? Do satellites constitute a permanent establishment? How do indirect taxes apply?” Clayson mused.

“A lot of the precedents are set by material from one or two of the space treaties, but also the international law of the sea,” he added.

All of this suggests that the pace of change in tax appears to be increasing rather than decreasing, and it is worth asking whether IFA can keep up. Clayson told ITR that the association is coming into its own precisely because the tax world is undergoing fundamental changes.

“If you look at the origins of international tax in the 1920s and 30s, the early construction of tax treaties, the focus was on taxing profits and there was an acceptance that double taxation was bad for the health of the economy,” Clayson said. “Now, fast-forward to this century and we’re five years into the BEPS project, which is the most astonishing reformation of the international tax architecture.”

Since IFA was launched in 1938, the association has grown from its European foundation to a string of different branches that now works across Europe, America and the Asia-Pacific region. The association is keen to expand in Africa, and the 2022 congress will be in Cape Town, South Africa.

“This is at the same time as the OECD has pushed out BEPS and the global transparency agenda is drawing in more and more countries,” Clayson said. “It is an extraordinary evolution in a very short period of time.”

Yet the most extraordinary changes may still be in the future. If tax avoidance goes extra-terrestrial, the anti-avoidance agenda will follow and space tax may prove to be the next front for tax advisers and their clients.

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