Current international tax trends

Plan for full transparency – and nothing less! The message from the OECD was crystal clear at the International Fiscal Association annual tax conference where 2,000 representatives from finance ministries, tax authorities, the EU/OECD, universities, corporate tax lawyers and consultants gather to discuss international trends and tax developments.

The upcoming changes in Swedish corporate taxes have been described as the most far-reaching in the last 50 years. The Swedish Ministry of Finance is quite busy, preparing the implementation in Sweden of new rules from the EU and OECD. We have blogged about these previously.

Top tax trends from the conference will impact large international companies as well as all Swedish companies with international ambitions.

• Tax risks are on the increase. Corporate tax lawyers at the conference pointed at dramatically increased tax risks until the effects of new rules have been sorted out and believe that tax risks will remain at a higher level than before. We will return to this in an upcoming blog.
• Taxation in the country of source. There is a clear trend towards an increased taxation of profits in the country where sales take place. For Swedish companies, this means that a smaller portion of profits will be taxed in Sweden in the future. The Swedish corporate tax base will be reduced as will state revenues from corporate taxation. The situation can almost be described as a war between countries fighting for tax revenue, with the companies in the middle. Countries with a large market are increasingly seeking to charge tax at source on payments to recipients abroad.
• Counter-acting aggressive tax planning. Governments will probably invest major resources in fighting aggressive tax planning to increase tax revenues in their own country. This will increase the risk of double taxation of companies’ profits.
• Increased application of state aid regulations. The rules on disallowed state aid through advantageous tax regulations will be applied more frequently within the EU. The EU Commission’s decision on Apple and Ireland, in which the EU now demands SEK 123 billion in taxes in arrears, is a first indication. The message is that countries and companies should make themselves highly aware and informed of everything that deviates from the normal. The OECD’s view is that advantageous tax rules should be terminated to the greatest possible degree.
• New taxes and charges. Countries are becoming even more creative in coming up with new taxes and charges which cannot be settled based on double taxation agreements. This easily leads to double taxation of profits. The pendulum has now swung so far that the OECD has initiated a project regarding what they call “growth- friendly taxes”!
• Increased requirement of openness and transparency. The need for increased openness is reflected in that the largest companies are required to present a detailed tax report for each country in which they operate, in the increased exchange of information between countries and in the requirement of public register of beneficial owners to counter-act money laundering and provide insight into ownership.
• More permanent establishments. The definition of permanent establishment, that is, incurring taxpayer obligations in a given country, is expanded which can lead to increased uncertainty as to where profits are to be taxed.

In response to these more restrictive and controlling tendencies, a number of countries are beginning to reduce general tax rates on companies and, in some cases, as regards private persons. In competing internationally for investments, Ireland’s general corporate tax rate of 12.5 percent is now the measuring stick.

Comments

Transparency and openness are the new keywords. For companies, it is increasingly important to be able to clearly report on how profits are calculated and where they arise. The growing demand on behalf of countries to levy taxes can lead to the increased risk of double taxation of profits, and to an increased demand for internal reporting.

In addition, companies have to clarify and maintain their stance as regards this new tax environment. This is an environment characterized by increasingly stretched state finances in many countries and developing countries greater welfare ambitions and insights into the value of their markets.

In two forthcoming blogs, I will provide further comments on corporate tax managers’ views regarding these developments and on tax issues in the growing global digital economy; the latter issue being very topical in Sweden.