The prolonged debate over the taxation of multinational companies (MNCs) is creating an air of uncertainty among global investors and the G-20 must swiftly work to articulate an equitable solution to international tax planning in order to assuage MNC concerns, according to Taxand, the world’s largest global organisation of tax advisors for multinational businesses.
Frédéric Donnedieu de Vabres, the chairman of Taxand, called on leaders at the G-20 summit to be prompt in providing more clarity on the use of tax strategies that minimise corporate tax payments across the world, and has said that the G-20 should articulate a plan that will not threaten the manner in which MNCs conduct their activities across borders.
In a formal statement to reporters, which was released ahead of the G-20 summit that took place in mid-February 2013, Mr de Vabres said that G-20 countries must push MNCs to manage their tax responsibilities across a range of jurisdictions, without placing a significant financial burden on them. In his view, this can only be achieved by understanding the role of MNCs, and the ways in which their finance and tax departments contribute to shareholder value.
Although the Organisation for Economic Co-operation and Development’s (OECD) study into 'Base Erosion and Profit Shifting', which was commissioned by the G-20, explores the use of tax strategies that minimise corporate tax payments globally, the medium-term anti-avoidance legislation, which it was hinted could be part of the solution, was seen as being problematic. “The OECD has already hinted at a potentially problematic medium-term anti-avoidance legislation, which will cause a significant financial burden [to] multinationals,” said Mr de Vabres. “If the international tax system is to be fundamentally reformed, then this should be clarified and implemented swiftly, rather than working towards a half-hearted solution that leaves corporates in the dark and further burdened.”
While a harmonised approach to international tax planning has its merits, there is a significant downside risk of double taxation on MNCs, as this could negatively impact global investment, economic growth and job creation, according to Taxand. In addition, the controversial decision by some internet companies to invest in locations with favourable tax regimes revealed that fierce competition is another crucial barrier to harmonisation.
“The problems associated with a unitary system have this week been illustrated by the outbreak of reaction against the EU’s Financial Transaction Tax, which potentially disregards long-term inter-country agreements,” said Mr de Vabres. “There would no doubt be considerable interest from multinationals in increasing their dialogue with the relevant tax authorities in the early stages of a project… and it is this, as opposed to a pursuit of harmonisation, that [appears to be] the best way forward.”