The Prime Minister announced that ownership details of UK companies will be made publicly accessible.
This announcement was preceded by a Discussion Paper in July 2013 outlining various proposals of the initiative, including the statement in paragraph 11: “The names of legal owners appear on an individual company’s share register, which is publicly available. But if we want to know who really owns and controls a company, we must identify its beneficial owners too. The beneficial owners are the individuals that ultimately own or control the company – either because they hold an interest in more than 25% of the company’s shares or voting rights; or because they control the management of the company in some other way.”
Links to the announcement, Discussion Paper, and executive summary of the Discussion Paper are attached for reference.
This initiative is likely to be followed closely by other countries, and details requiring UK disclosure should be reviewed early to adopt Best Practices and address questions arising in the UK and around the world from this public disclosure announcement.
OECD’s report to the G20 leaders in St. Petersburg, Russia is attached for reference, consisting of a Progress Report to the G20 in Part I, and details of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan and offshore tax evasion efforts in Part II. This posting will capture some highlights from the report, and pose analogies for Best Practices in alignment with the OECD’s initiatives. The report may be accessed at:
The Introduction provides commentary on “legal tax avoidance,” renewed demands for greater transparency, calling for all taxpayers to pay their fair share, and completion of a global model for automatic exchange of information by 2014.
Initiatives of the Global Forum on Transparency and Exchange of Information (the Global Forum) have resulted in 119 jurisdictions committed to standards of transparency and exchange of information. Best Practices includes communicating results of the Global Forum to global and regional tax teams, and business leaders, to ensure that global consistency of information is being provided to tax authorities.
The Global Forum promotes exchange of information via a monitoring and peer review process. The process includes Phase 1 reviews, examining a jurisdiction’s legal framework for exchange of information, and Phase 2 reviews that examine information exchange in practice. How well does the exchange of information process work for Multinational Enterprises (MNEs)? Is this report, with a schedule of subsequent discussions on its impact, automatically sent to all tax team members, or is each individual personally responsible for accessing, reading and comprehending the report, including Phase 1 and Phase 2 reviews?
Peer reviews result in recommendations for improvement, with all jurisdictions required to provide follow-up reports describing actions taken. Re: global audits, are recommendations for improvement provided during, and after, the audit, with action steps documented?
The Global Forum has organized four training seminars in 2012, and five training seminars this year, in addition to implementation toolkits. Appendix 4 of Part 1 provides a listing of members and observers, inherently resulting in potential impacts for these proposals beyond the OECD member countries. How many training forums and business tools have been provided by MNEs in the last two years to review the ongoing trend of global tax proposals?
Part 2 lists the 15 activities of the BEPS Action Plan to be addressed by all relevant stakeholders. For analogy, has the MNE also listed those same activities, addressing potential impacts, risk quantifications and expected actions for each of the proposals, including a relevant timeline and accountability? Are all international tax team members and business leaders aware of the BEPS Action Plan?
Automatic exchange of information is becoming the norm, versus the exception, for tax authorities around the world. How are tax changes, audit queries, changes in tax laws, etc., communicated within the MNE enterprise quickly and efficiently? Is a tax newsletter communicated to the global business, addressing areas of focus and learning?
Annex 2 of the Progress Report outlines a model of multilateral automatic exchange of information designed to implement a step change in transparency. This section is useful in addressing future legislative changes, draft model competent authority agreements, legal / confidentiality concerns, and legal bases for the exchange of information. MNEs should track public comments and future changes of OECD member countries and observers to address these initiatives.
The highlights of the OECD G20 Report, and suggested comments for Best Practices, are meant to promote creative thought and reflection to effectively plan for the rapid evolution of change in the international tax arena.
The Press Release and Progress Report 2013 are not restricted to activities within Africa, as they advocate tax and transparency initiatives for the upcoming G8 Summit and the international community. Japan, Russia, Switzerland, the UK and the US are individually identified in the report.
The Africa Progress Panel (APP) consists of ten distinguished individuals from the public and private sector who advocate for shared responsibility between African leaders and their international partners to promote equitable and sustainable development for Africa. Mr. Kofi Annan chairs the APP. The Panel functions in a unique policy space with the ability to target decision-making audiences.
The press release sets the stage for the debate with the following statement: “International tax avoidance and evasion, corruption, and weak governance represent major challenges. The report therefore welcomes the commitment from the current G8 presidency, the UK, and other governments to put tax and transparency at the heart of this year’s dialogue. International business should follow best practices on transparency.”
Part III of the Report has sub-captions beginning on page 63 entitled: “Aggressive tax planning” drains the public purse, followed on the subsequent page with “When companies evade tax responsibilities.” This section includes the following statements: “Tax avoidance has emerged as a global concern. In Europe and North America, public anger has been directed towards highly visible multi-billion dollar firms that minimize their tax liabilities through sophisticated but aggressive tax planning.”
Part IV, “Fair taxation-an international challenge, ” provides the commentaries: “Many resource-rich countries in Africa are losing out as a result of “aggressive tax planning”-a euphemism in some cases for tax evasion. Transfer pricing is another endemic concern. Tax evasion is a global problem that requires multilateral solutions. At the heart of the problem is the unwillingness of the OECD countries and wider international community to strengthen disclosure standards. Japan, Russia, Switzerland, the UK and the US all operate regimes that allow for aggressive tax planning and limited regulatory oversight. All tax jurisdictions should be required to declare the beneficial ownership structure of registered companies. Governments in Africa could also look beyond the OECD dialogue.”
The sub-section entitled “Recommendations for Immediate Action” includes a message for transparency by extractive companies stating: “All countries should embrace the project-by-project disclosure standards embodied in the US Dodd-Frank Act and comparable EU legislation, applying them to all extractive industry companies listed on their stock exchanges.”
A message to the G8 community states: “The G8 should establish the architecture for a multilateral regime that tackles unethical tax avoidance and closes down tax evasion. Companies registered in G8 countries should be required to publish a full list of their subsidiaries and information on global revenues, profits and taxes paid across different jurisdictions. Tax authorities, including tax authorities in Africa, should exchange information more readily.”
The message to the international community states: “The G8 should adopt at its 2013 summit in the UK a framework that commits each country to full disclosure through a national public registry of the beneficial ownership of registered companies, with a commitment to create such registries before the 2014 G8 summit.”
This report demonstrates the tone for increased tax and transparency within Africa, and more importantly its message to the G8 and the international community. Unfortunately, the terms aggressive tax planning, avoidance and evasion are used interchangeably in the Report which is intended to provide a strong message for tax and transparency changes but also provide complexity in seeking solutions. This message is being seen more often in the news from around the world, and the transparency topic is one that should be discussed with senior management and the Board to ensure alignment going forward.