INTHEBLACK August 2022 - Magazine - Page 37
“It’s difficult to design a global system that works for a lot
of countries, because every country has its own different
tax regime, whereas accounting standards are a lot more
standardised around the world. It does add a lot of
complexity, but the alternative of trying to mirror tax
regimes around the world would have been a lot more
difficult, so at least this provides some sort of globally
consistent framework.”
ALIA LUM, KPMG AUSTRALIA
global minimum rate will be set at 15 per cent – the
parent company could collect the additional 5 per
cent tax and pay it to the Australian tax authorities.
“Singapore could then say, ‘Well, why are we giving
this concession if another country can just take the
revenue?’,” Lum explains. “So, it would encourage
Singapore to either get rid of its concessional tax rate,
or introduce a domestic minimum tax to effectively
have the minimum rate of 15 per cent.”
Higher-tax jurisdictions such as Australia – which
applies a full company tax rate of 30 per cent – are
less likely to have additional top-up taxes.
ACCOUNTING INSTRUMENT
As mentioned, one of the most interesting – and
potentially contentious – elements of BEPS 2.0 is
that accounting profit figures will be used as the basis
for determining multinationals’ tax liabilities. This
approach is already common in some international
jurisdictions, such as the UK.
Kendall points out that modern accounting
standards have to address a vast array of user needs
– covering regulators, investors and, in an era when
sustainability has come to the fore, other stakeholders,
customers, employees and people with an interest in
examining the use of common resources.
“That’s just a flavour of the sorts of purposes for
which accounting reports are being used, whereas
there’s really only a single user for a tax return, and
that’s the government,” he says. “So, there are a lot
of policy decisions embedded in tax legislation, many
of which don’t align with accounting treatment.”
Kendall says the result with tax legislation is
that governments can make explicit choices, which
sometimes will cause deviations from accounting
profit. This includes accelerated depreciation, which
encourages spending on certain types of assets and in
certain sectors of the economy. “That’s not captured
in accounting profit.”
Governments may also make policy decisions
not to allow a deduction for certain expenditure,
including spending on entertainment. “So, taxable
profits will be higher as a result of that, whereas
entertainment expenditure is fully expensed for
accounting purposes. We’re potentially undoing a lot
of those policy decisions by going and doing this.”
A WORK IN PROGRESS
While CPA Australia agrees that tax reporting and
financial reporting have different objectives, it has
argued that, in the case of BEPS 2.0, there may be
some justification for using accounting profit as the
starting point for the calculation of the minimum tax.
This is because financial reporting rules under
International Financial Reporting Standards (IFRS)
have been adopted in about 180 jurisdictions and
provide a consistent base on which to begin.
CPA Australia contends that extra work is needed,
and is already under way, in “flexing” accounting
profits to arrive at a globally accepted taxable
profit, with the OECD currently developing the
Model Rules that will form the basis of the tax rate
calculation.
Lum can understand why the OECD has opted
to use profit figures. “It’s difficult to design a global
system that works for a lot of countries, because every
country has its own different tax regime, whereas
accounting standards are a lot more standardised
around the world,” she says. “It does add a lot of
complexity, but the alternative of trying to mirror
tax regimes around the world would have been a lot
more difficult, so at least this provides some sort of
globally consistent framework.”
Kendall notes that there have been circumstances
in the past where the Australian Government has
used accounting figures for taxation purposes – not
for levying tax, but as a step along the way. He cites
the thin capitalisation tax rules that limit and cap
the amount of debt-related deductions an Australian
taxpayer can claim for tax purposes.
“But it did create a few headaches [with clients’
tax positions] that a lot of people didn’t see coming.
intheblack.cpaaustralia.com.au August 2022 37