This blog is written by our law summer student, Ira Marcovitch.
This blog is a follow-up to Apple, Starbucks: Multinational Legal Tax Avoidance in US, EU Exposes Tax Law Loopholes, published on June 18, 2013.
Now that the proverbial dust has settled on the furor Apple caused last month when it came to light that it had been avoiding billions in income tax, the time has begun for conscious debate and decisions on how to fix the international tax regime (or lack thereof) that allowed the technology giant, and many others, to avoid ‘paying their fair share.’
On Friday, July 19 leaders of the G-20 endorsed a list of 15 tax principles proposed by the OECD and aimed at closing many of the tax loopholes that allow multi-nationals to skirt domestic tax laws. The proposal includes ideas to prevent corporations from ‘treaty shopping’- finding countries with low tax rates and registering profits there while the corporation is located and does business elsewhere. The proposal also recommends rules to curb the practice of transfer pricing, which is the diversion of profits and losses between subsidiaries disguised as internal payments, such as royalties or purchase of goods, so as to avoid paying income tax.
While the proposed changes are still in their infantile stage, they represent a dramatic shift in the international approach to taxation and regulation. However, there still exist a number of hurdles that the plan must go through before concrete changes are seen, and felt. First, the plan must be approved by the G20. This will most likely be met with the least resistance, as an endorsement by the G20 is little more than a symbolic gesture.
For the proposals to have any effect, the changes must be implemented by each of the member countries; this involves drafting and enacting domestic legislation in each country. In federations such as Canada and the United States, where taxation is a matter within the scope of both the national and provincial or state legislatures, this may mean that legislation must be passed by both if any changes are to be effected. Given that any proposal to increase tax regulation is likely to be met with strong resistance and fervent lobbying by corporations, this stage of the process will take years to conclude, if ever. Given that many politicians, north and south, scrupulous and not, receive support from the corporations at issue, the process is only going to be more protracted.
Even if some countries, or even all of the G20 member nations, implement the changes, we are still left with the conundrum that drew us to this spot. For an international tax regime to have any force there needs to be internationally uniform application and enforcement. The fact that many of the traditional tax havens, such as the Turks and Caicos and the Bahamas are neither part of the G20 nor have any interest in losing business by signing on to these changes, means that loopholes will still exist. And, as we have all known from the beginning, loopholes were the cause of this affair; so long as they exist, the problem will as well.
For more information on the globalization of tax regulation, Tax Avoidances, Ingenious Shell Game, Tax Minimization, Comprehensive Tax Reform, and Tax Strategies, contact the Toronto Business & Corporate Tax Litigation Lawyers of Devry Smith Frank LLP for sound, practical and cost effective tax litigation advice today.
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