G20 releases a bold tax agenda
The OECD report
The report sets out a rather bold, ambitious plan on the entire gamut of cross border tax issues that would impact MNC’s and in my view, fundamentally alter the manner in which MNC’s have to comply with compliance requirement.
The report would result in a fundamental overhaul as its seeks to introduce increased level of transparency and information sharing between MNC’c and tax administrators across the world. It also tends to address a vexed issue of economic double taxation a menace that MNC’s face when there are transfer pricing adjustments and competent authorities refuse to conclude a mutual agreement procedure.
This report is significant in the sense that unlike past reports, it has a political buy in ( or rather a political agenda) and general civil society backing in countries where voice has been raised by the common man.
The report focuses on three primary issue of consistency, transfer pricing and transparency.
It proposes to address issues in the area of taxation of digital economy, hybrid mismatch ( where entities are characterized differently in two jurisdictions ), deductibility of interest, harmful tax practices, treaty shopping and abuse, transfer pricing issues such as intangibles, compulsory reporting, county by country disclosure, settlement of tax disputes.
Developments in the next 24 months will be closely watched as many countries would be gearing up for cleaning their domestic law to address G20 expectations.
The implementation would require greater degree of cooperation between tax administrators and alignment of tax regulations, particularly ones that affect cross border movement of goods and services. I anticipate that the G20 will work closely with the tax payer community and address vexed issues such that functioning of businesses are not impacted and there is free flow of trade, investment and services.
This is of particular significant for India where MNC’s have been at the receiving end and are craving for certainty, transparency and timely resolution of disputes. This is an opportunity for BRIC’s countries, particularly India to embrace a host of new principles which will entail raising the level of compliance and disputes resolution.