GAAR<\/a> from General Anti-Avoidance Rule to General Anti-Abuse Rule, I assumed the political class had sought to pay due homage to public angst about multinationals. Quite how it could achieve this by classifying unilaterally as abuse, arrangements covered by OECD guidelines on Transfer Pricing, was beyond my comprehension.<\/p>\nAs it happens, Transfer Pricing issues aren\u2019t addressed by GAAR. Google can continue to sign off UK contracts in Eire and declare profits there rather than here, Starbucks can carry on supplying coffee to its UK stores from the coffee-growing republic of Switzerland, Amazon\u2019s delivery operations can remain in exotic locations \u2013 GAAR isn\u2019t interested. In the context of GAAR, these structures are quite simply not an abuse.<\/p>\n
But whilst they may not be an abuse under GAAR, the OECD has recognised its rule book may well be out of date. It recently published a report, Action Plan on Base Erosion and Profit Shifting which considers the implications and issues arising from the evermore digitalised world and the scope that provides to multinationals from \u201cthe increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning\u201d.<\/p>\n
Its opening commentary on the background to these issues states \u201cTaxation is at the core of countries\u2019 sovereignty\u2026\u201d. Whilst it goes on to explain that frictions and disparities between different domestic taxing structures create the opportunities for tax arbitrage, at no stage does it seek to challenge the fundamental principle of national sovereignty.<\/p>\n
It then goes on to comment on the need for \u201ccoherence of corporate income taxation at the international level\u201d \u2013 but not specifically mentioning rate differentials; the need for certain territories to tighten their Controlled Foreign Company rules; the need to tighten the regime on interest deductibility; the need to modify rules to address the use of multiple layers of legal entities inserted between the residence country and the source country; tightening definitions of permanent establishment; transfers of intangibles to low-tax regimes at undervalues; excess capitalisation; and perhaps most importantly, the need to increase transparency, in the form of greater disclosure to revenue authorities.<\/p>\n
To my untutored eye, the document appears to identify the principal concerns that flow from global trading and profits attribution. By implication, it suggests that if these issues are addressed, then perhaps public concerns that multinationals \u201cget away with it\u201d may be assuaged. But I think this overlooks the elephant in the corner, the statement\u2019s opening words, \u201c\u201cTaxation is at the core of countries\u2019 sovereignty\u2026\u201d. For as long as any one country is able to use fiscal means to achieve politically acceptable outcomes \u2013 primarily encouraging economic activity in its territory in preference to its neighbour\u2019s \u2013 legitimate planning strategies to limit overall tax burdens will inevitably be exploited by multinationals.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"I\u2019ve blogged in the past on Transfer Pricing issues and the public perception that the likes of Starbucks and Google don\u2019t pay their fair share of tax in the UK. I\u2019m out on a limb on this one \u2013 I don\u2019t believe business has some moral obligation to pay more tax than is legally required.[…] <\/p>\n