For the first time we see a confluence of society's concern and the tax system. Governments, companies and individuals are weighing in on this debate.
In July 2013, the OECD released its Action Plan for Base Erosion and Profit Shifting (BEPS)
which seeks to address the discrepancy between the current international tax rules and the concept of the 'fair share' through recommended changes to tax rules.
"Many of our clients are reviewing their structures and considering what potential tax changes might mean."
Australian Tax Centre Leader
A key plank of the OECD's plan is to address the lack of tax transparency. The convergence of five streams gave rise to the BEPS debate:
1. Lack of government revenue and the need for greater expenditure.
2. Risk of corporate social responsibility regarding taxation and media focus.
3. Internationalisation of business.
4. Fragmentation of the supply chain.
5. The digitalisation of the economy.
Governments and business need to work together over the next couple of years, together with the OECD, and think about how tax systems should operate.
The main threat to business is not the potential success of changing tax rules, but the failure to gain international consensus. This will lead to countries going their own way and the fragmentation of international tax rules.
So what does this mean?
It means that you have to stay on top of what these developments are. You need to understand how profits are created in a particular country, what the capital risk is, how financing arrangements are put together, so that you can understand what the impact will be on the organisation – both in country but also on a regional and a global basis.