Recent debate around the taxation of multinational companies (MNCs) across global markets shows no signs of abating, and the coming months ahead of the G8 meeting hosted in London in June will see “a continuing flow of deliberation” on the issue as leaders look to establish their positions and steer the debate in advance, according to the Taxand consultancy.
The specialist tax advisory firm to MNCs was responding to UK prime minister David Cameron’s speech on 24 January at the World Economic Forum (WEF) in
, where he repeated accusations that large corporates are being ‘immoral’ in their tax payments and called on world leaders to step up efforts against companies engaging in tax evasion.
According to Frédéric Donnedieu de Vabres, chairman of Taxand, 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. The location of taxable profits, or ‘permanent establishment’, is an extremely complex area; more so for companies with intangible assets, whose profits are essentially global in nature.
De Vabres believes harmonisation looks a long way off, with the recent trend apparently in the opposite direction. Tax legislation is becoming increasingly complex and increasingly diverse, with jurisdictions continually tinkering with their tax regimes in order to demonstrably close perceived ‘loopholes’. Taxand’s global survey also indicated that whilst MNCs would like harmonisation, only 42% feel it is achievable over the next five to 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.
Taxand’s chairman concludes that there is still a need to strike the right balance between understanding the role of MNCs and the roles of their finance and tax departments to contribute to shareholder value, alongside the need to manage their tax responsibilities across various jurisdictions. He believes many MNCs would welcome greater 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.
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