G20: ASPIRING TO A COMMON TAX LANGUAGE
While there are real benefits in increasing transparency between the taxpayer and the tax administration, and between tax authorities, calls to go further require far greater consideration.
The G20/OECD Base Erosion and Profit Shifting (BEPS) project has been yet another indication that tax operates in an ever more connected world. Bringing together the differing perspectives on taxation, and coalescing them around 15 Actions,was an achievement that would have been unthinkable even a decade ago.Yet it, and many other initiatives, now exist above the remit of the individual governments, striving to bring greater alignment and coherence to the world’s varied tax systems.
Such alignment brings real benefits for governments, but also offers the appetizing prospect for businesses of tax systems that are more coherent.Reducing disparities should reduce situations in which tax has the potential to complicate commercial decision making,something most business leaders would welcome.
Transparency demands communication
The benefit of alignment has made the role of the G20 and the international organizations even more important, as they help to bring together the various parties. However, it also has changed the role of the tax director. While they have always needed to be good at understanding the many and varied tax provisions, the discussion of BEPS and other topics has required them to become good communicators and diplomats, able to explain the approaches undertaken by their businesses but also to understand the perspective of governments.
Today we have a much greater focus on transparency, not only as a result of the BEPS country-by-country reporting requirements, but also the wider provisions on exchange of information.We now have over a hundred jurisdictions committed to operate Automatic Exchange of Information(AEOI). In this new landscape, those communication skills are going to be in ever greater demand.
Such transparency is set to increase,as seen at the G20’s recent meeting in Chengdu which focused on tax transparency objectives and reform progress generally. Here representatives restated the call for automatic exchange of information by 2018. China’s Finance Minister, Lou Jiwei, also supported the development of a new international tax environment and China’s release of new guidance on 29 June 2016 formally introduced country-by-country reporting.
Amid great change, it is sensible,however, to regularly pause and consider areas of risk and concern.While there are real benefits in increasing transparency between the taxpayer and the tax administration, and between tax authorities, calls to go further – in the direction of public disclosure of taxpayer data – require far greater consideration.As the German Finance Minister Wolfgang Schauble warned, “sometimes there is a contradiction between transparency and efficiency”.
businesses need to be data-ready
This desire for transparency of data come sat a time of technological revolution,meaning that the tax administrator and the tax director of tomorrow will also need to be a technologist. Given BEPS and AEOI,a mechanism is needed by which data are gathered and shared in a way that is consistent with the aspirations of BEPS but also does not impose a disproportionate burden on the taxpayer.
There are, however, great opportunities here, and there is now a strong role for the G20 in helping countries to align with simple systems that deliver transparency with the minimum level of burden,repetition or cost. Businesses need toplay an active role in helping to develop how the future will look, as the choices they make will impact the ease with which information can be provided.
Investing in technology will certainly make compiling and sharing information easier for companies and governments alike. But businesses in particular should ready themselves for this new environment. Not least, they would be prudent to introduce a data infrastructure that will accurately meet the information requirements, and consider the system and process changes that will need to be put in place. Data can be misinterpreted,so they will also need to plan for how they will present it clearly in the context of their businesses when responding to tax authorities.
So, as the G20 reflects on how much is being achieved through BEPS, it needs also to look to the future and plan how it can help drive this forward coherently.Delivering this is no small task, and a challenge that may yet be greater than the ones met to date. What is for certain is that it requires all of us to hone our skills in these three key areas: taxation,communication and technology.