How would you define “aggressive” tax planning?
When does this type of tax planning become “unethical” or “immoral” tax avoidance?
During the past year, following Lux Leaks and other major cases of tax avoidance by large corporations, these questions and others of their ilk have become fodder for discussion in international taxation circles.
Several international bodies and local tax authorities have already made moves to confront “aggressive” tax planning and promote investment, employment and growth via an increase in tax revenues.
OECD at the Forefront of Stopping “Aggressive” Tax Planning
The OECD, led by Pascal Saint-Amans, Director of their Centre for Tax Policy, has pushed for a comprehensive restructuring of international taxation regulations as part of an effort to curtail tax avoidance and “extremely aggressive” tax planning.
According to Saint-Amans, in an interview to Kamal Ahmed, Business Editor at BBC News, changes are deemed necessary and an agreement on these restructured rules should be in place by the G20 meeting to be held on November 15-16 in Antalya, Turkey, and ready for implementation prior to 2020.
Saint-Amans primarily targets huge technology companies like Apple, Amazon, Facebook and Google, which, according to him, "have been extremely aggressive, pushing the boundaries of what is legal.”
"My advice,” he says, “would be instead of focusing on tax planning, please do the wonderful job you are doing on innovation and be much more conservative on tax planning.”
In many cases, the effective tax rate for large international companies adopting “aggressive” tax planning schemes can be as low as 5%, while that for smaller firms can range from 20 to 30%.
Saint-Amans also believes it is imperative for there to be balance between the current system that has moved towards “double non-taxation” and one in which double or multiple taxation potentially stifles cross-border investment.
A New ‘Code of Conduct’ Against Tax Avoidance in the UK?
At a more local level, the UK Her Majesty’s Revenue and Customs (HMRC) has launched an initiative to have large businesses adopt a voluntary code of conduct on taxes (‘Code of Practice on Taxation for Large Business’) and, more importantly, release an annual tax strategy signed off by one of its board members.
More specifically, HMRC believes, according to finance secretary David Gauke, that “increased scrutiny of tax strategy by a business’s board actively discourages aggressive tax planning.” Estimates suggest that such a move would rake in more than £65 million in additional tax revenue.
Furthermore, the plan is for HMRC to crosscheck companies’ annual tax strategies with their tax claims and returns in search of discrepancies, which, if found, would lead to a closer examination of the companies’ financial records.
Companies that refuse to participate will be penalized. According to the HMRC report issued on July 22, 2015, this initiative would implement “a narrowly targeted ‘Special Measures’ regime to tackle the small number of large businesses that persistently undertake aggressive tax planning, or refuse to engage with HMRC in an open and collaborative manner.”
Not all companies will be covered by the proposed regulation. As part of this push, only companies with more than £200 million in turnover or “a relevant balance sheet total of more than £2 billion for the preceding financial year” will be affected.
What are your thoughts on these proposals? Will they be helpful in curtailing "aggressive" tax planning? Share your thoughts with us in the comments section below!