Public confidence in the international tax system has eroded in recent years. Like business, the UK Government has an im
Building trust in the international tax system Policy briefing #2
"The international tax system must be reformed to regain the trust of all stakeholders whilst maintaining the UK as a leading place for business"
The G20/OECD Base Erosion and Profit Shifting (BEPS) project has been a unique exercise, providing an opportunity to update international tax rules to ensure companies pay tax where the profits are earned. It is important that all stakeholders, including governments, tax authorities, civil society and corporate tax payers have trust that the outcome will deliver a fair system. For the UK, a system that reduces both tax avoidance and double taxation whilst maintaining the UK’s competitiveness is vital to attract investment, create jobs and drive sustainable growth and public finances. In order to improve the trust of stakeholders whilst maintaining competitiveness, we recommend that the Government focuses on three key themes:
Building public trust It is in everybody's interests that tax systems are understood and are perceived to be effective. Public confidence in the international tax system has eroded in recent years. Like business, the UK Government has an important role to play to address the trust deficit that exists for the benefit of all stakeholders. This will need to include a clearly communicated and fairly implemented policy on tackling abusive tax arrangements. The BEPS project provides the best opportunity for this.
UK – territory of choice It is vital for the health and productivity of the UK economy that the UK remains as a territory of choice for internationally mobile business to locate here. It is therefore particularly important that the UK Government does not go beyond what is necessary to tackle BEPS and abusive tax arrangements as agreed by the G20. The UK tax system must signal the UK is open to business and inbound investment.
Stability, clarity & consistency It is important that the UK's tax system sees a period of stability once the BEPS project outcomes are established and implemented. The UK Government should continue to work with its international partners to establish common understandings and application of those BEPS outcomes, in particular in the area of transfer pricing and taxation of permanent establishments.
The three themes are explained in more detail overleaf.
BUILDING TRUST IN THE INTERNATIONAL TAX SYSTEM
Building public trust
UK – territory of choice
AS A RESULT OF THE BEPS PROJECT THE UK GOVERNMENT SHOULD:
Ensure the UK tax regime maintains competitive features. (This is to be explored in the CBI paper on the corporate tax regime). Maintain non-discriminatory taxation of “digital” business. Allow for practical and pragmatic compliance across all taxes. Reduce cross border disputes and uncertainty by agreeing and implementing a global arbitration regime with international treaty partners which is mandatory and binding. Enhance the UK’s role as a regional and global support centre by ensuring that businesses receive tax credits for withholding taxes paid on activities in modern fragmented supply chains. IN ORDER TO ATTRACT FOREIGN INVESTMENT, THE UK GOVERNMENT SHOULD:
Provide certainty on the application of UK tax rules to inbound investment via a “one stop shop” tax rulings approach. Extend the UK tax treaty network to best in class, encouraging treaty partners to reduce withholding tax burdens imposed on international transactions involving UK businesses. ON THE EUROPEAN UNION TAX AGENDA, THE UK GOVERNMENT SHOULD:
Focus on proposals for simplification of intra-EU trading and ensure that EU tax directives remove cross-border double taxation.
Stability, clarity & consistency
TO INCREASE TRANSPARENCY, THE UK GOVERNMENT SHOULD:
Implement the OECD’s version of country-by-country reporting so tax authorities have the information they need to ensure the right amount of tax is paid in each jurisdiction. Publish data on the amount of tax information shared with other tax authorities. Publish data showing trends and directions in UK tax rulings. Promote public understanding of the international tax system. TO BOOST GLOBAL ENGAGEMENT, THE UK GOVERNMENT SHOULD:
Enhance and increase public awareness of HMRC’s Capacity Building Unit to help developing countries collect more tax. Continue active engagement with the UN and OECD Forum on Tax Administration. Play a leading role in developing and securing systems for a confidential exchange of information. IMPROVE TRAINING AND FOCUS OF HMRC TO ENSURE:
Effective delivery of UK Government’s campaign against tax evasion and abusive tax structures. An increase in the availability of Customer Relationship Managers and a better delivery of the cooperative compliance programme.
UPON CONCLUSION OF THE BEPS PROJECT THE UK GOVERNMENT SHOULD:
Provide a clear roadmap on how BEPS project recommendations will be implemented in the UK and their consistency with the Government’s aim of maintaining the UK’s competitiveness. Ensure EU alignment with the OECD principles. Review (and amend) the Diverted Profits Tax to ensure consistency with the OECD proposals. DELIVER USING EFFECTIVE POLICY MAKING FRAMEWORK:
Ensure full consultation and engagement on BEPS project implementation measures, in accordance with the UK Government’s tax policy making framework. (This is explored in the CBI’s paper on tax policy making). TO SIMPLIFY THE UK TAX REGIME AND ENSURE CONSISTENCY WITH OTHER INTERNATIONAL REGULATIONS THE UK GOVERNMENT SHOULD:
Reduce the compliance burden to access cross border tax reliefs and tax rulings. Remove obsolete or duplicative anti-abuse provisions following BEPS project implementation. Harmonise regulatory requirements for tax and those required by other regulatory bodies to reduce complexity and sharing of information between different UK Government departments.
Protect UK sovereignty on corporation tax so it remains a lever to respond to national economic circumstances.
For further information or a copy in large text format, please contact: Milda Jardine, senior policy adviser, CBI T: 020 7395 8234 E:
[email protected]
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