The digital economy is a transformative process, brought about by advances in information and communications technology (ICT) which has made technology cheaper and more powerful, changing business processes and bolstering innovation across all sectors of the economy, including traditional industries. Today, sectors as diverse as retail, media, manufacturing and agriculture are being impacted in some way by the rapid spread of digitalisation. In the broadcasting and media industry, for instance, the expanding role of data through user-generated content and social networking have enabled internet advertising to surpass television as the largest advertising medium.
Sanctions need to be imposed on offshore centres to make money laundering more expensive. And, in response to shell companies investing their wealth in the London and New York property markets, French stocks and German bonds, a worldwide financial register should also be created.
If there is a silver lining to the 2008 financial crisis, it is that it was a catalyst for the unprecedented progress we have made in building robust international tax standards for the interconnected global economy of the 21st century.
When I was interviewing 200 bankers and banking staff working in Europe's financial centre the City of London, perhaps the most telling was the language. Not so much the profanities– though there were many of those–nor the technical stuff and three-letter acronyms (TLAs). Most striking were terms that seemed designed to sidestep any possibility of ethical discussion. When discussing their banks’ use of loopholes in the tax code to help corporations and rich people legally evade taxes, bankers used words such as “tax optimisation” or “tax-efficient structures”. Financial lawyers and regulators who went along with whatever banks propose were “business-friendly”; cases of proven fraud or abuse became “mis-selling” and exploiting inconsistencies between two countries’ regulatory systems was 'regulatory arbitrage'.
There is a growing awareness that mitigating greenhouse-gas emissions is not only about introducing new climate policies, but also making sure that existing measures and regulations do not run counter to climate goals. In other words, governments should not undermine with one hand what they are seeking to achieve with the other. There is no better example of this problem than fossil fuel subsidies.
Most people probably scratch their heads when it comes to filling out their tax returns. But whatever
challenges ordinary taxpayers face are nothing compared to what tax officials must confront, particularly when dealing with multinational firms.
"The OECD and the G20 are moving in the right direction. Their goals are ambitious as they try to modernise the international taxation system. Achieving consensus on fundamental tax issues among so many countries will be a major achievement."
African countries heavily rely on the income generated by multinationals’ taxation, which can represent as much as 88% of a country’s tax base. Little wonder Africa is involved in the OECD’s initiative to address tax base erosion caused by profit shifting, known as BEPS. The need to strengthen inter-governmental co-operation to curb cross-border tax losses was reaffirmed at the Africa Tax Administration Forum (ATAF) in Sandton on 21 April 2015.
Overhauling the global tax system and its practices is fundamental if we are to deliver stronger, cleaner and fairer growth for a post-Crisis world. The Secretary-General explains how the OECD, with the support of the G20, is finding ways to fix the current international tax situation.
In September the OECD presented its first package of recommendations to the G20 for an international approach to stopping artificial tax base erosion and profit shifting. Seven recommendations were proposed as part of the 15-point BEPS Action Plan.
How much of a country can you count? The newly updated Understanding National Accounts from the OECD answers this question and gives a summary of how to calculate the accounts as well as the principles and data sources behind them.
International investment treaties are in the spotlight as recent articles in the Financial Times and The Economist show. An ad hoc investment arbitration tribunal recently awarded $50 billion (€40 billion) to shareholders in Yukos. EU consultations on proposed investment provisions in the Transatlantic Trade and Investment Partnership (TTIP) with the United States generated a record 150,000 comments. There is intense public interest in treaty challenges to the regulation of tobacco marketing, nuclear power and health care.
The global campaign will continue in 2014 to improve international tax rules, many of which were first designed over a century ago, and to make them fit for the era of globalisation and new technologies. In 2013 policy attention was focused on the problem of profit shifting by global firms and its negative effects on tax bases, with the OECD issuing its widely publicised 15-point Action Plan on Base Erosion and Profit Shifting (BEPS) to leaders at the G20 summit in September. A key action area in the plan concerns crossborder tax hybrid schemes, with an OECD report due to address the problem in 2014. How do they work?
“A career in politics is no preparation for government”, said one of the characters in the 1970s British TV comedy series, Yes Minister. They had a point. After all, to newly elected politicians, government seems to be set up as a testing and complex route for taking (or stopping) decisions and implementing policy.
“International tax reform demands strong national and G20 leadership, but the prize of a fair and efficient tax system is well worth the effort.”
A view from Michael Izza, Chief Executive, ICAEW. ICAEW is a global accountancy body representing 140,000 Chartered Accountants across the world.
"Building more trust between companies and tax authorities will help inform the current public discussion of tax issues, creating a more fruitful conversation about tax policy choices for the 21st century."
|Whether you are a policy maker, business leader, politician, journalist, tax authority or just a regular citizen, the issue of tax is probably high on your agenda.|
Governments’ budgets have taken a heavy blow in the global economic crisis, as they have had to foot the bill of corporate bailouts and massive rises in unemployment. Policymakers had little choice but to squeeze public services and jack up income and consumption taxes. So it is little wonder that politicians and their electorates were enraged when news broke revealing that some of the world’s largest and most profitable corporations, some of them icons of the new economy, paid little or no tax at all, including in countries where they pulled in massive profits.
Ireland held the presidency of the European Union during the first half of 2013, and good progress was made in key areas, such as the banking union and economic governance, but much remains to be done to restore confidence in the EU, particularly for its citizens.
How multinationals and related firms calculate their internal global transactions for tax purposes is always under scrutiny, and even more so since the start of the crisis. The widely accepted way is to compare the value of those transactions with similar real market transactions. This arm’s length approach has its critics and competition is brewing. Here are the pros and cons.
For a more effective global tax framework, more transparency between jurisdictions will be vital. An automatic exchange platform, which will strengthen other steps aimed at closing off international avenues to tax evaders, is now in the pipeline.
Though optimism about a recovery may be rising, the global crisis has left deep scars and placed economies of all levels and sizes under severe strain. Achieving long-term, inclusive, growth is a key goal of OECD countries and a central theme of the Russian presidency of the G20. Reforms are essential for achieving that goal, though other measures, in fiscal policy for instance, could help too.
How to get it right
Austerity programmes to restore order to public finances can add to the woes of already struggling economies, leading to more job losses and social hardship. But there are ways for governments to put their fiscal houses in order, while supporting growth and reducing income inequality at the same time.
What the BEPS are we talking about?
Bloomberg’s “The Great Corporate Tax Dodge”, The New York Times’ “But Nobody Pays That” and the Guardian’s “Tax Gap”: these are some examples of the wide media attention given to global tax issues in recent weeks. The public is understandably becoming alarmed, since what is at issue is how profit shifting by multinationals is eroding their national tax bases. OECD initiatives on tax policy can help.
See the trends in taxes on personal income for the G7 from 2008 to 2011.
A rising tide may not now lift all boats, to misquote US President Kennedy’s original analogy made in 1963 linking economic growth to prosperity for all. Can governments maintain the social cohesion needed for sustainable, long-term growth? Supporting an equitable income distribution remains one of the key goals of fiscal (and tax) policy.
The economic ills of the crisis have rightly prompted public reevaluation of government spending habits and revenue collection on both sides of the Atlantic. While congressional super committees and EU delegations hash out plans to foot massive debt bills, a combination of civil society groups, the Occupy movement, and simple common sense have brought long-deserved attention to certain tax loopholes and corporate practices that cost governments billions of dollars.
Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :