For the last four years, developing country tax administrations have been seeking business involvement in educating those tax administrations about multinational business models. Multilateral institutions such as the OECD, World Bank and IMF have been trying to get this to work.
There has been a lot of talk from business, but to date little action. The honourable exceptions have been Unilever and Rio Tinto. Why is this the case? Is business serious about this initiative? When I chaired the BIAC tax committee we were asked repeatedly for sectoral representatives to visit a number of countries and there were initially offers to do this. But little has actually happened. Having attended the recent BIAC tax committee meeting, I have great sympathy for my successor Will Morris as he doesn’t seem to be getting much support from business in making this type of initiative work, indeed hearing suggestions that business couldn’t fund people to participate and should consider webcasts to developing countries seemed to me to underline the lack of enthusiasm for this work. I’m not sure how many developing country tax administrations use webcasts? What they clearly do want is an interaction with business.
The World Bank spoke at the International Chamber of Commerce Taxation Commission in March and emphasised the benefits which could come from business explaining its business models.
So this is all very sad as this initiative has the potential to bridge the gulf of misunderstanding between tax authorities and business. I read the article in the FT about increasing transfer pricing documentation with interest and I quote:
“Businesses have expressed fears that providing these details – specifying the employees, assets and capital employed in each country – could be used to calculate tax bills according to a formula rather than the ‘arm’s length standard’, the internationally-agreed way of dividing up taxable profits. In a submission to the OECD, the United States Council for International Business said: “Business is especially concerned about non-OECD member countries, particularly developing countries with significant capacity constraints, using this information inappropriately.”
This just emphasises the need for dialogue leading to greater understanding between tax authorities and business. That understanding will develop if business does engage. The answer that this is too expensive doesn’t pass the laugh test. Its also ironic that this poverty pleading comes at the same time that a well known law firm is seeking $60,000 contributions per corporate for a coalition to lobby on BEPS – maybe some of that money would be better spent flying business reps to some G77 countries?