Prolonged Tax Debate Creates Dangerous Air of Uncertainty for MNCs, Says Tax Advisor

Prolonged debate and naval gazing on tax issues creates a dangerous air of uncertainty for multinational companies, at a time where the still fragile global economy is in need of cross-border investment activity and growth, according to the chairman of Taxand, an independent global organisation of specialist tax advisors to multinational businesses.


"As the world’s biggest nations discuss potential solutions and the OECD develops its ‘Action Plan’ over the coming months, it is essential that a careful balance is struck so that an equitable solution to international tax planning does not threaten the way in which multinational companies interact and conduct their activities across borders," says Frédéric Donnedieu de Vabres.


De Vabres notes that the OECD has already hinted at some potentially problematic, medium-term anti-avoidance legislation which will cause a significant financial burden for multinationals.


"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," says the Taxand chairman.


According to De Vabres, while a harmonised approach to international tax planning has its merits, there are significant risks around ‘double taxation’ for businesses, which could significantly impact investment, growth and jobs around the world.


"The complexity of an international system also needs careful consideration. The location of taxable profits, or ‘permanent establishment’, for example, is an extremely difficult area, and one made even more complicated for companies with intangible assets, whose profits are essentially global in nature."


Meanwhile, 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," says 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 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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