New G7 tax policies announced lately will face hurdles as the proposals are yet to be agreed by the G20 and other jurisdictions, said ACCA recently.
“Committing to a global minimum tax of at least 15% on a country by country basis is a challenge, predicated on the agreement of other jurisdictions’ governments,” said Jason Piper, head of tax and business law at ACCA.
To be truly effective it will need to go beyond the G7, and even the G20, to the OECD’s Inclusive Framework of 139 countries, requiring compromise as governments surrender legal sovereignty in return for an effective, practical framework, he added.
“And the move for multinationals to pay tax in the countries where they do business — and not just were they are headquartered — will create new legal and accounting challenges for banks, businesses and tax authorities,” Piper noted.
The main challenges are about achieving true parity and fairness, ACCA pointed out.
“This is indeed a seismic announcement, but it’s more a foreshock than the main event,” Piper said.
Corporate taxes contribute only a small proportion of total revenues, and these measures capture only a tiny fraction of even that, he observed.
The real heavy lifting is done by consumption and personal income taxes, and that is where reforms could make a real difference to the sorts of societies we live in,” Piper added.
“Overall, tax 'mitigation' is the symptom, not the cause,” Piper said. “We’ve broken the link between business and the society it serves, and somehow need to rebuild that.”
Building a tax system which supports and encourages a circular economy would help — and profits taxes are a very small part of that, he advised.
“However, this is a move to be welcomed, bringing fairness and transparency to a system that has long been seen solely as a matter for national governments,” Piper said. “We have long called for a halt to the race to the bottom for setting corporate taxes.”