G8 Summit Likely to Focus on Tax Harmonisation

The debate around the taxation of multinational companies across their global markets shows no signs of abating, according to the Taxand consultancy, responding to David Cameron's speech at the World Economic Forum in Davos where the UK prime minister repeated accusations that large corporates are being ‘immoral’ in their tax payments.


In his short speech, Cameron called on world leaders to increase their efforts to stop companies engaging in tax evasion and to clamp down on the methods corporates use to avoid tax payments.


"As we approach the G8 meeting hosted in London in June, we are likely to see a continuing flow of deliberation on crossborder taxation, as leaders look to establish their positions and steer the debate in advance," says Frédéric Donnedieu de Vabres, chairman of Taxand.


De Vabres says conversation at the G8 summit is likely to focus on the issue of ‘harmonisation’ and whether a more joined-up tax system is the best solution to the problem of establishing where company profits are taxed.


De Vabres notes that the location of taxable profits, or ‘permanent establishment’ is an extremely complex area, and one made even more complicated for companies with intangible assets, whose profits are essentially global in nature.


"Still, harmonisation looks a long way off. In fact, the trend of late seems to have been in the opposite direction, and tax legislation is becoming increasingly complex and increasingly diverse, with jurisdictions continually tinkering with their tax regimes in order to demonstrably close perceived ‘loopholes’," says De Vabres.


Taxand’s global survey also indicated that whilst multinationals have a desire for harmonisation, only 42% feel it is achievable over the next 5-10 years.


Fierce competition for inward investment between countries is also creating another hurdle for harmonisation.


Internet companies in particular have been targets for public criticism, having been attracted to tax regimes where their large numbers of intangible assets are taxed in a much more accommodating manner. This has meant jurisdictions such as Ireland and Belgium have become hubs for companies in this sector to base their businesses.


"There remains a necessity to strike the right balance between understanding the role of multinational companies, and the roles of their finance and tax departments to contribute to shareholder value, alongside the need to manage their tax responsibilities across a number of jurisdictions," notes De Vabres.


De Vabres believes that there would be considerable interest from multinationals in increasing their dialogue with the relevant tax authorities in the early stages of a project in order to obtain prior agreements for a particular initiative or investment.


"It is this, as opposed to a pursuit of harmonisation, that perhaps poses the best way forward."


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