Many might have thought that 2018 would be the quiet harbour in the global storms of tax reforms, but recent developments and outlook show the global tax environment looks to be as dynamic and challenging as before, with activity across almost all depths.
Taxation performs a key function in enabling both domestic and global development. It also underpins cross-border economic activity as well as domestic resource mobilisation and good financial governance.
Across the globe, there is currently a wave of tax competition which is fundamentally driven by governments wanting to attract economic activity to their jurisdiction. This development sits at the very heart of much of the change(s) occurring in today’s taxation landscape.
As many countries look intensely at their own regimes, and tax reform — either Base Erosion and Profit Shifting (BEPS) driven or more fundamental, other issues such as the continuing desire for European tax harmonisation, the ongoing debate on digital taxation and the desire for tax certainty have all continued to support the need for companies and their advisors to view the world though a multilateral lens.
The world has turned strongly against tax evasion and aggressive tax planning. Thanks to ground-breaking international agreements which make it impossible to hide assets by simply placing them in offshore accounts or structures.
On April 19, 2016, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG) announced the details of their joint effort to intensify their cooperation on tax issues: the Platform for Collaboration on Tax.
The Platform not only formalies regular discussions between the four international organisations on the design and implementation of standards for international tax matters, it also strengthens their capacity-building support, delivers jointly developed guidance, and shares information on operational and knowledge activities.
Aside many countries specific efforts to enhance their revenue from tax; it is noteworthy that BEPS implementation reaches its peak in 2018. BEPS refers to corporate tax planning strategies used by multinational companies that artificially “shift” profits from higher-tax locations, to lower-tax locations, thus “eroding” the tax-base of the higher-tax locations.
Addressing base erosion and profit shifting is a key priority of governments around the globe. There are 15 actions developed in the context of the OECD/G20 BEPS Project which equip governments with domestic and international instruments to address tax avoidance which ensures that profits are taxed where economic activities generating the profits are performed and where value is created.
The latest in the pressure line is that many governments of resource-rich developing countries are under pressure to offer tax incentives in order to attract mining investors. But the Organisation for Economic Co-operation and Development (OECD) has reservation to this saying that these incentives may significantly reduce government revenue, “especially when investors use them in ways that exceed the tax benefit initially intended by government.”
Following peer review of the BEPS minimum standards by the Organisation for Economic Co-operation and Development (OECD), it is also expected that a tsunami of changes to domestic legislation of many countries and to the international network of bilateral tax treaties will take place.
Digitisation is another key issue in taxation globally. The international community has taken an important step towards resolving the tax challenges posed by the digitalisation of the economy. For instance, in the first-quarter (Q1) of 2018, more than 110 countries and jurisdictions agreed to review two key concepts of the international tax system, responding to a mandate from the G20 Finance Ministers to work on the implications of digitalisation for taxation.
There are clear indications that the Forum on Tax Administration’s (FTA) Joint International Task Force on Shared Intelligence and Cooperation (JITSIC) already works collaboratively on issues raised by the so-called “Paradise Papers” leaks.
“Banking secrecy has been quickly disappearing and cooperation between tax administrations is rapidly improving. The FTA’s Joint International Task Force on Shared Intelligence and Cooperation was well prepared for this leak,” said Hans Christian Holte, Director General of the Norwegian Tax Administration and the new Chair of the Forum on Tax Administration at the Tax and Crime Forum 2017 in London.
Drawing on the insights and experience of jurisdictions around the world, the OECD essential principles for effectively fighting tax crimes cover the legal, institutional, administrative, and operational aspects necessary for putting in place an efficient system for fighting tax crimes and other financial crimes.
In the first-phase of peer review report on Country-By-Country (CbC) reporting, OECD confirmed Nigeria has rules (primary law) that impose and enforce Country-by-Country requirements on Multinational Enterprise (MNE) Groups whose Ultimate Parent Entity (UPE) is resident for tax purposes in Nigeria.
“The first filing obligation for a CbC report in Nigeria commenced in respect of fiscal years commencing on or after January 1, 2018. Based on final primary law not yet published, Nigeria meets all the terms of reference relating to the domestic legal and administrative framework,” it noted.
Nigeria is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011), which came into force on September 1, 2015.
Nigeria is also a signatory to the CbC Multilateral Competent Authority Agreement (MCAA) and it intends to submit its notifications under section 8 of the CbC MCAA soon. It is recommended that Nigeria continue to take steps to have Qualifying Competent Authority agreements in effect with jurisdictions of the Inclusive Framework that meet the confidentiality, consistency and appropriate use conditions. It is however noted that Nigeria will not be exchanging reports in 2018.
“We have underlined the complexity of the issues, and highlighted the importance of reaching international agreement, both for our economies and the future of the rules-based system. The OECD stands ready to accompany countries as they seek to build a common understanding of the issues related to the digital economy and taxation, as well as the long-term solutions,” according to an interim report presented by OECD Secretary-General Angel Gurría to the G20 Finance Ministers at their meeting on March 19-20 in Buenos Aires, Argentina.
Countries continue to look to stimulate economic activity and attract foreign direct investment (FDI) by maintaining or lowering their corporate tax rates.
According to EY outlook for global tax policy in 2018, six countries look to drive competition by reducing corporate tax rates; 37percent forecast higher tax burdens as a result of digitally focused law changes; while long-term trend for a low-rate, broad-base tax system is set to reach tipping point.
“The long-term trend of having a low-rate, broad-base tax system that has been playing out for many years continues in 2018. Six of the 41 jurisdictions (15percent) surveyed in our latest outlook have lower headline corporate income tax rates in 2018 – that is roughly the same as the 16percent in our 2017 Outlook and the 18percent in our 2016 Outlook, when like-for-like countries are compared,” said Chris Sanger, EY Global Tax Policy Leader.
Sanger and Rob Thomas, Director, Tax Policy identified issues that have the potential to change many aspects of how domestic and cross-border activity is taxed in 2018 and beyond.
They experts are probably fair to say that the taxation of digitised business is now receiving far more attention than in 2013, when the BEPS Action Plan (incorporating Action 1 on digital) was being developed. In the words of the OECD’s tax leader in 2017, “A big thing which has not been dealt with adequately by the BEPS project is the digital economy.” Fifteen of the 41 jurisdictions (37percent) are already forecasting higher tax burdens as a result of digitally focused changes in 2018.
They noted in essence that 2018 is a year of delivery, “with the move from concept discussion at the multilateral level to the reality of policy change at the country level”
These issues according to them include: BEPS implementation, both via new national legislation and through the choices made with the OECD’s Multilateral Instrument; the implementation of Europe’s Anti-Tax Avoidance Directive (ATAD-I) and ATAD II across the (currently) 28 EU Member States, ahead of 2019 and 2020 deadlines; and responses to US tax reform, an issue of great magnitude in its own right
Others are changes in the shape of tax competition, with governments balancing the need to attract jobs and investment with the constraints that the BEPS recommendations place upon them; reignition of the discussion on how to tax digitalized business, with differences of opinion between the members of the BEPS IF; and continued spread of VAT, with the Gulf Cooperation Council (GCC) states joining China, India and Malaysia in recent adoptions or expansions.
It also includes the new rules on mandatory disclosure of tax planning schemes in the EU; the European Parliament’s desire to see CbC reports being made public; shifts in the tax enforcement landscape: and new digital tax administration requirements, new subjective anti-avoidance tests, and a new multilateral tax assurance process.
