Author: Amanda Visser (BDlive)
Businesses globally are facing a period of great uncertainty following the publication of seven action plans that countries will be implementing in the next year to address the shifting of profits by multinationals in efforts to reduce their tax liabilities and depriving countries of much needed revenue.
Jeffrey Owens, former head of the Organisation of Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration, anticipated a “tsunami” of tax disputes between multinationals and tax authorities because there was certainly going to be inconsistencies in the application of the steps announced this week.
The base erosion and profit shifting (Beps)-project of the OECD and Group of 20 countries were intended to bring about the most significant reform of the international tax system since the 1950s. Tax reforms have for many years focussed on the prevention of double taxation, yet with Beps, the focus has shifted to the prevention of double “nontaxation”.
Mr Owens, who is now the senior policy adviser to the vice-chair of EY’s global tax services, said businesses will have to review their tax planning methods and ensure there is substance in their methods. Business will have to get used to operating in a much more transparent environment, he said at EY’s annual Africa tax conference in Sandton.
“If one combines the country-by-country reporting, the disclosure of aggressive tax schemes which will be introduced next year, the new transfer pricing documentation requirements and the exchange of information between tax authorities, companies will have to have a more global approach to their tax management.”
Ghana Revenue Authority commissioner-general George Blankson said the Beps actions were important for African countries, and they were quite aware of them. However African tax authorities also had to grapple with issues such as the large informal sector, capacity building and getting their tax systems in order. Therefore Beps was not necessarily first on the priority list.
Laurent Corthay, regional co-ordinator for tax in Africa at the World Bank, agreed and referred to revenue losses to African governments through tax incentives. He said there was a need for better cost analyses to determine returns on tax incentives in the form of investments and employment. The World Bank was doing extensive work on looking at tax incentives and the effectiveness of it to boost revenue streams.
Mr Blankson said investors were more concerned about the stability of the tax regime and certainty around tax liabilities. He said African countries needed to rethink the use of incentives, and that it may be more prudent to use the revenue (that would have been foregone through the incentives) to finance infrastructure and education to supply good roads, secure power supply and a skilled workforce.
Mr Owens said governments should first look at disincentives in their tax systems. He said refunds on value-added tax were a nightmare in most countries. In many instances it was seen as a loan from the private sector to the government.