EuroFinance 2014: World Regulators Get Tough on Tax

Over the past 20 years the double Irish has been used by Google, Facebook and some of the major pharmaceutical companies, but the concession by the Irish government was described as a pre-emptive move in response to the growing international move to coordinate individual efforts to stamp out corporate tax avoidance.

The accord between different countries to tackle the issue is unprecedented, Batanayi Katonegra, head of transfer pricing at UK law firm Olswang, told EuroFinance attendees. “An important battle is now going on over how corporates are to be taxed in future.”

At the centre of this battle is the issue of transfer pricing (TP), or the price at which goods, services and intellectual property is transferred between connected parties. A complex body of law underpins the TP system.

Katonegra said that the importance of TP was demonstrated by commercial transactions that were becoming more global and also more complex. This had resulted in multinational corporations (MNCs) such as Google, Amazon, Starbucks, Glencore and Unilever being hauled before a UK parliamentary committee and accused of ‘outrageous’ tax avoidance. Starbucks had conceded to pressure and agreed to pay more tax, while Amazon and Google had successfully resisted.

Katonegra’s firm is now reviewing TP that can be easily communicated to a general public that shows growing resentment against firms who fail to pay their ‘fair share’ of tax.

Base Erosion and Profit Sharing (BEPS)

The tax initiative is also centred on international efforts to stem base erosion and profit sharing, aka BEPS, by companies. The BEPS action plan was established by the Organisation for Economic Cooperation and Development (OECD) following the July 2012 meeting of G20 finance leaders that called for reform of the international corporate tax system.

The BEPS action plan consists of 15 individual points; five addressing coherence, five with substance and five with transparency. At its heart, said Katonegra “is the recognition that no one nation can deal with BEPS on its own.” Thus one of the main planks is the requirement for MNCs to complete tax returns and submit them to the relevant authority for every country in which they operate.

“There has never been a wider sense of collaboration between the world’s various tax authorities, who are obviously comfortable with sharing information if it means clamping down on tax avoidance,” Katonegra concluded.

He cited this week’s news that the proposed £32bn deal under which US pharma group AbbVie would have acquired Dublin-based Shire Pharmaceuticals appears to be on the skids as evidence that “some measure of correction is already underway”. AbbVie has said that US government moves to clamp down on tax inversion deals, which have been used by US companies to redomicile following an overseas purchase as a means to lower their tax bill.

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