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Jiří Nekovář, President of the Confédération Fiscale Européenne, considers how international tax planning is evolving.

Introduction

The role of the tax adviser used to be clear: to minimise the tax you pay using every lawful means possible. But have the lines become blurred?  What was clear ten years ago – avoiding tax is good; evading tax is illegal – has become murky of late.

Just recently the UK witnessed a public outcry over the cross-border tax-planning actions of Amazon, Google and Starbucks that reduced to minimal amounts the corporate taxes they paid in the UK, instead seemingly to pay tax at a lower rate in another country. While these companies did nothing illegal, the UK public appears to have decided their actions were immoral.

European Commission Response to 'Aggressive Tax Planning' Across Borders

The European Commission is now against what it calls ‘aggressive tax planning’ and is looking at measures that will militate against cross-border tax planning. In December 2012 the Commission adopted two recommendations to Member States on aggressive tax planning and the promotion of good governance in tax matters globally. In this framework, it was suggested that the so-called ‘General Anti-Abuse Rule’ be added into the Double Taxation Conventions of Member States.  By these means, the EU also supports the Organisation for Economic Co-operation and Development (OECD) in its work against aggressive tax planning.

Tax Authorities Exchange Information

Mutual exchange of information is nothing new. The Council of Europe and the OECD began work on this in 1988 and the Global Forum on Transparency and Exchange of Information, consisting of 111 members, has existed since 2000. However, it took a G20 decision in 2010 to give new impetus to mutual exchange of information. Since then there have been 495 recommendations on how to improve co-operation on tax matters. Furthermore, this year the OECD has issued two reports, one of which discusses automatic exchange of
information.

Further Afield

As for the Middle East and North Africa, the Global Forum has entered into a Memorandum of Understanding with the United Arab Emirates (UAE) agreeing to two seminars that confirm UAE’s commitment to the Global Forum’s work. The first seminar took place in November 2012; the second will happen during the third quarter of 2013.

Emerging Nations

If the twentieth century was about Europe and the United States, the twenty-first century is about the emerging economies such as Brazil, Russia, India and China. But the BRIC countries are not members of OECD and don’t feel any need to observe its rules. An example is the rules on transfer pricing, an area where the Global Forum and OECD are currently focusing.

VAT

A big global issue is VAT. At a recent Global Forum seminar it was stated that more than 150 countries operate a VAT system – twice as many as in 1992 – and VAT now raises 20% of the global tax revenue. The Global Forum concluded there is a clear need for an internationally agreed set of principles and guidelines that ensure VAT is not a barrier to international trade.

Going Global

With global taxation boundaries becoming more blurred, what is the future role for tax advisers?  As business has gone global and taxation issues become global issues, tax advice needs to assume a more global perspective.  Although umbrella organisations already exist within continents – the Conféderation Fiscale Européene (CFE) represents 180,000 advisers around Europe; the Asia-Oceania Tax Consultants Association (AOTCA) represents tax advisers from nineteen countries and the West African Union of Tax Institutes (WAUTI) represents seven countries – in future tax administrations must organise themselves globally.

Tax planning is already a complex area; it is set to become more complex. Your tax advisers will play an increasingly important role in helping you to run your business efficiently. But to do this, tax advice will need to pay heed to global tax rules; this means the tax planning industry will need to reorganise itself to deliver.