Proposed amendment to Finance Bill could hamper implementation of OECD international tax reforms

Commenting ahead of Monday’s Parliamentary debate on the proposed amendment to the Finance Bill which would pave the way for multinationals to publicly disclose the tax they pay in each country,Rebecca Reading, Tax Partner at RSM said:

‘The proposal by a cross party group of MPs to amend the Finance Bill 2016 to allow for the public disclosure of country-by-country reporting follows an earlier unsuccessful attempt back in June.

‘At that time, David Gauke, who was then Exchequer Secretary to the Treasury, made it clear that it was not then right to take this step unilaterally. We are concerned that the timing for unilateral action is now is even worse.

‘David Gauke also raised concerns that the amendment as drafted was both technically flawed and would risk disadvantaging UK-based businesses at the expense of foreign competitors.

‘This latest proposed amendment seeks to remedy the drafting defects. On the question of disadvantaging UK-based businesses, since the earlier attempt there have been further significant developments globally in the drive to implement the OECD’s Base Erosion and Profit Shifting (BEPS) reforms – a package of measures (including country-by-country reporting to be shared between tax authorities) designed to promote tax coherence and clamp down on avoidance by multinationals.

‘One of the most significant developments has been in the US, where the US Treasury and Internal Revenue Service (IRS) released their finalised country-by-country reporting rules at the end of June.These closely follow the OECD’s original recommendations and state that US companies will not be required to put key tax data in the public domain. The IRS made it quite clear that country-by-country reports will not be shared with any country that poses a threat to confidentiality.

'While the UK government has previously stated that public country-by-country reporting would come eventually and that the UK would seek to promote this internationally, there is a danger that if the UK breaks rank on this issue now – particularly at a time of strained relationships following the Apple ruling – the resulting confrontation with US lawmakers could make it harder for the pieces of the BEPS puzzle to fall into place.’