INTHEBLACK August 2022 - Magazine - Page 35
The OECD’s latest gambit to reduce
multinationals’ tax avoidance will rely on
using accounting figures for tax reporting
under a historic two-pillar plan.
STORY CAMERON COOPER
T
AT A G L A N C E
The two-pillar BEPS 2.0
agreement to curb base
erosion and profit shifting
is gaining wide
international support.
Under the agreement,
accounting profit figures
will be the basis for
determining
multinationals’ tax
liabilities.
Although BEPS 2.0 isn’t
likely to come into effect
until 2024, some
jurisdictions are already
reassessing their tax rates
and incentive schemes.
he global fight against multinational
profit shifting to low-tax regimes
continues in earnest.
Despite wrangling over the details
and likely delays in adopting solutions, almost
140 jurisdictions globally have pledged to
back the Inclusive Framework on base erosion
and profit shifting (BEPS), which will subject
multinational enterprises to a minimum tax
rate of 15 per cent. Attention now turns to the
use of accounting profit figures to determine if
multinationals are paying the right amount of
tax and whether this is a suitable instrument.
Some are already questioning the move.
Dr Keith Kendall, chair of the Australian
Accounting Standards Board, is one of the critics.
“I think it’s quite inappropriate to use accounting
profit as the basis for levying tax, so I’m a bit
surprised to hear the OECD [Organisation for
Economic Co-operation and Development] is
even thinking about this,” he says.
The core of the problem, according to
Kendall, is that tax legislation and accounting
standards serve two different purposes.
“Accounting figures are trying to obtain
a true and fair account of a company’s
financial position, whereas tax legislation
is a government’s attempt to try to levy an
appropriate amount of tax revenue for their
spending programs.”
HISTORIC REFORMS
Few could argue with OECD SecretaryGeneral Mathias Cormann, who has described
the latest profit shifting breakthrough, dubbed
BEPS 2.0, as “historic” – adding that “this
reform will make our international tax system
fairer and work better in a digitalised and
globalised world economy”.
The BEPS 2.0 initiative builds on previous
efforts to prevent multinational profit shifting,
and has been hailed as the biggest change to
global taxation in a century. The initiative is
designed to enable governments to collect more
taxes from global technology giants such as
Amazon, Apple and Google, which have long
used the intangible value of their mammoth
enterprises to justify shifting profits to low-tax
regimes such as Ireland, Hungary, Bermuda and
the British Virgin Islands.
The challenge now is to finalise implementation
of the OECD deal, which groups countries and
jurisdictions on an equal footing for multilateral
negotiation of international tax rules.
TWO PILLARS
The two-pillar BEPS 2.0 agreement is the latest
iteration of a long campaign to address the
challenges arising from the digitalisation of the
global economy.
Pillar 1 lets countries tax profits from goods
and services provided by multinational groups
with more than €20 billion (A$29.5 billion)
in global turnover and profitability above
10 per cent of revenue. In return, countries
that impose digital services taxes, including
France and the UK, must remove them.
Pillar 2 seeks to establish a global
minimum corporate tax rate of 15 per cent
for multinational enterprises if they have a
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