Restoring integrity of tax systems – a taxing crossroad
BEPS and integrity of tax systems
Restoring integrity in tax systems will be difficult to achieve . Extensive as the Action Plan on BEPS may be , it is unlikely that it will result in tax systems that the public , media and civil society will accept as being truly proportionate , equal , neutral and impartial ( and thereby that companies are paying their fair share of taxes ). This is more so because ( aggressive ) tax planning cannot be entirely eliminated as countries continue to design their tax rules with competition in mind , and what is a “ fair share of taxes ” will remain subjective and a matter of perception .
Some stakeholders appear to have rejected , for example , the longstanding legal notion in tax law that “ anyone may arrange his affairs so that his taxes shall be as low as possible ; he is not bound to choose that pattern which best pays the treasury . There is not even a patriotic duty to increase one ’ s taxes ”. ( Billings Learned Hand )
Some stakeholders appear to have rejected , for example , the longstanding legal notion in tax law that “ anyone may arrange his affairs so that his taxes shall be as low as possible ; he is not bound to choose that pattern which best pays the treasury . There is not even a patriotic duty to increase one ’ s taxes ”. There is now a clear public demand for companies not
only to pay their taxes , but to increase the amounts payable . To satisfy this demand will be a tall order , however , mainly for the proliferation of legal bases that allow companies to do exactly the opposite .
Integrity of tax systems and developing countries The G20 ’ s tax agenda includes a commitment to international tax cooperation to protect the integrity of national tax systems by : ( 1 ) addressing tax avoidance , particularly BEPS , to ensure profits are taxed in the location where the economic activity takes place ; ( 2 ) promoting international tax transparency and the global sharing of information ; and ( 3 ) ensuring that developing countries benefit from the agenda , “ particularly in relation to information sharing ”.
One wonders why developing countries should only “ particularly ” benefit in relation to information sharing . In a global economy , a more active involvement also of developing countries ought to be critical to the success of the Action Plan . Emphasizing tax information exchange with developing countries alone may not sufficiently address international tax avoidance and create integrity in tax systems globally . It is mainly due to globalization that most of the tax avoidance schemes that the Action Plan on BEPS seeks to address are possible and leaving out developing countries would undermine the effectiveness of proposed solutions under the Action Plan .
Murky waters ahead Achieving a level of integrity in global tax systems that is acceptable to all stakeholders will be challenging . We are not dealing with an exact science . Indeed , restoring integrity of tax systems will in most cases mean ensuring that companies pay their “ fair share of taxes ” by curbing international tax avoidance and evasion . But in some cases it may simply require that authorities walk a tightrope and address the public , media and civil society ’ s perception of what is a “ fair share of taxes ”.
In wading the murky waters ahead , the International Bureau of Fiscal Documentation will be there to provide its independent tax expertise and also document this unprecedented transition .
Kennedy Munyandi Team Manager Afr-ME-Latam , IBFD Rietlandpark 301 1019 DW Amsterdam P . O . Box 20237 1000 HE Amsterdam , The Netherlands Tel .: + 31-20-554 0100 ( GMT + 1 ) Email : info @ ibfd . org