As I have said in previous blogs on the subject, business needs to respond to all the work-streams and action points in the BEPS report – because the absence of a response will be taken by some in government as a tacit acceptance of the findings and actions (there are plenty of examples of this from previous consultations). But the key challenge is how to respond to the strategic theme of the report – the elimination of double non taxation.
Now I have some sympathy with this strategic theme. I struggle to find an intellectual argument to oppose the elimination of double non taxation per se. My exception would be where it arises where a government decides to exempt income from taxation in a domestic context and states that this is its policy. I would extend this to income subject to a lower rate of taxation as well. That government needs to have considered the cross border ramifications of that policy and believe them to be acceptable. Otherwise if two or more states decide to remove the building blocks of a double non taxation transaction, I think the only business response should be to ask for a reasonable period of time to adjust.
However, this should not be the end of the discussion. Business is concerned with the elimination of double taxation and it is important that through the BEPS process the focus on the changes made to address double non taxation doesn’t lead to a lack of focus on the continued elimination of double taxation – which is why the ICC project is so important. But there is more. My major concern is that if business opposes the elimination of double non taxation, there is a real danger that the response of governments will be “if you’re not bothered about the elimination of double non taxation, why should we be concerned about the elimination of double taxation”. So the response to BEPS has to look strategically at how business can continue to maintain a concensus for the elimination of double taxation amongst all the stakeholders in international tax.
Now there are some in business who don’t agree with this, in that their primary concern is the protection of their own double non taxation benefits, they need to think carefully about what the consequences for business as a whole are, of engaging in this tactic.
I do find this position difficult to understand. To extend this issue in another field, if there was a method by which the very rich could create a double non taxation opportunity for their income, would business support this? The answer is no, so why would it take a different position on its own income? Or do some people support double non taxation for all?
My conclusion is that business has to find a response to the issue of double non taxation. I don’t think it can say it doesn’t have a position. There has been a great deal of discussion as to how business responds to press and ngo comment, and to date that response has been muted, most agree it has been too muted. If business cannot develop a position on double non taxation and is silent, then surely ngos and the press will question why?