No Avoiding Anti-Avoidance!
Kitty Miv, Editor
02 June, 2021
Having looked last week at anti-avoidance through the lens of the global minimum corporate tax rate being proposed by the US Government, it seems fitting to broaden our focus to anti-avoidance matters more generally, starting with various reports into BEPS issues released by the OECD and the IMF.
On May 25, the OECD released new stage 2 peer review monitoring reviews looking at eight territories' implementation of recommendations under BEPS Action 14, on improving tax-related dispute mechanisms. The territories under examination for this tranche of the reviews were Estonia, Greece, Hungary, Iceland, Romania, the Slovak Republic, Slovenia, and Turkey.
Under BEPS Action 14, jurisdictions have committed to implement a minimum standard to improve the resolution of tax-related disputes between jurisdictions. A key minimum standard is that countries should aim to resolve double tax disputes in no more than 24 months. The OECD said that the results from the peer review and peer monitoring process demonstrated positive changes across all eight jurisdictions, although it acknowledged that not all had shown the same level of progress.
Also on May 25, the International Monetary Fund released a paper titled "Taxing Multinationals in Europe" which looked at the efficacy of European corporate tax systems and weaknesses that may lead to tax base erosion and profit shifting, reviewing the performance of the CIT in Europe over the past several decades and the important role played by MNEs in European economies, analyzing corporate tax spillovers in Europe, and examining the progress made in European CIT coordination. The report additionally discussed reforms to strengthen the harmonization of corporate tax policies, in order to effectively reduce both tax competition and profit shifting.
The European Commission, separately, announced that it is seeking feedback on proposals for tackling the use of shell entities and arrangements for tax purposes, and has launched a roadmap initiative, which will explore the options for ensuring that legal entities and legal structures in the EU without a substantial business presence will not benefit from tax advantages.
The initiative aims to tackle "the use of legal entities with no or minimum substance and no real economic activities, by taxpayers operating cross-border to reduce their tax liability."
The policy options to be considered will include the current national practices and legislation (where existing) providing for anti-tax avoidance rules, including those deriving from the transposition of existing EU rules like the Anti-Tax Avoidance Directive. The Commission will also consider to what extent existing instruments, such as the Code of Conduct on Business Taxation may eventually achieve the objectives. The roadmap is open for feedback until June 17, 2021.
And finally, not wishing to be overshadowed, the US Government unveiled more domestically-focused anti-avoidance plans, to complement its international proposals, having set out measures to close the "tax gap" in the United States – the difference between the taxes owed and actually paid.
According to Treasury analysis, the tax gap totalled nearly USD600bn in 2019 and will rise to about USD7 trillion over the course of the next decade if left unaddressed – roughly equal to 15 percent of taxes owed.
Initiatives to close the tax gap were outlined in a recent report, which revealed that as a first step, the Biden Administration had made a multi-year commitment to "rebuild the IRS" with sustained funding. In total, it has pledged USD80bn in additional resources over the next decade. Funding would go to modernizing IT systems, improving data analytics and hiring experts dedicated to complex enforcement activities.
Until next week!
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