Restoring Integrity of Tax Systems – a taxing crossroad
It may be argued that the OECD Action Plan on Base Erosion and Profit Shifting (BEPS) has two main complementary objectives:
The first main objective is the elimination of international tax avoidance and evasion schemes (specifically those labelled BEPS and integrity of tax systems Restoring integrity in tax systems will be difficult to achieve. Extensive as the Action Plan on BEPS may be, it is unlikely that it will result in tax systems that the public, media and civil society will accept as being truly proportionate, equal, neutral and impartial (and thereby that companies are paying their fair share of taxes). This is more so because (aggressive) tax planning cannot be entirely eliminated as countries continue to design their tax rules with competition in mind, and what is a “fair share of taxes” will remain subjective and a matter of perception.
Some stakeholders appear to have rejected, for example, the longstanding legal notion in tax law that “anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes”. (Billings Learned Hand)
Some stakeholders appear to have rejected, for example, the longstanding legal notion in tax law that “anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury.
There is not even a patriotic duty to increase one’s taxes”. There is now a clear public demand for companies not as “aggressive”) that thrive on identifying and exploiting the legal opportunities available to multinational enterprises. This objective, apart from its multilateral scale and scope, is not completely new. Countries have always been quick to close tax loopholes whenever they have been identified, just as tax advisers and taxpayers have been quick at only to pay their taxes, but to increase the amounts payable.
To satisfy this demand will be a tall order, however, mainly for the proliferation of legal bases that allow companies to do exactly the opposite. Integrity of tax systems and developing countries The G20’s tax agenda includes a commitment to international tax cooperation to protect the integrity of national tax systems by:
(1) addressing tax avoidance, particularly BEPS, to ensure profits are taxed in the location where the economic activity takes place;
(2) promoting international tax transparency and the global sharing of information; and
(3) ensuring that developing countries benefit from the agenda, “particularly in relation to information sharing”.
One wonders why developing countries should only “particularly” benefit in relation to information sharing. In a global economy, a more active involvement also of developing countries ought to be critical to the success of the Action Plan. Emphasizing tax information exchange with developing countries alone may not sufficiently address international tax avoidance and create integrity in tax systems globally. It is mainly due to globalization that most of the tax avoidance schemes that the Action Plan identifying and exploiting them. The second main objective of the Action Plan on BEPS is to restore integrity in tax systems. According to the Action Plan, base erosion and profit shifting undermines the integrity of the tax system because “the public, the media and some taxpayers deem reported low corporate