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Tax in the future: responding to the new global economy
Peter Vial 14 October
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Awesome!
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You beat us!
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You beat us… AGAIN Low corporate tax rate! Capital gains tax!
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New Economy Old Rules Preventing double tax Global Digital
Sharing Data driven Preventing double tax Allowing tax competition Allowing mismatches
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2015 Global GDP: US$73.4 trillion
New economy: global 2015 Global GDP: US$73.4 trillion 10 largest companies: market value US$3.6 trillion NZ and Fiji GDP: US$128 billion
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Market Capitalisation (US$ bn)
New economy: digital Company Market Capitalisation (US$ bn) NZ GDP (US$ bn) FIJI GDP 1 Apple 764 123 2.1 2 Google 373 3 Alibaba 233 4 Facebook 226 5 Amazon.com 199
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New economy: sharing US$300 billion by 2030
AirBnB has more guests per night than Hilton Worldwide 155 million guests per year New economy: sharing UBER operates in 77 countries US$300 billion by 2030 Spotify has 30 million paying subscribers & 100 million users
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New economy: data driven
2.5,000,000,000,000,000,000 bytes of data produced daily Google stores 10 exabytes (1018 bytes) of data (total) Once you have signed the privacy policy, your data from clicks, GPS, Cookies, search engines e.t.c… is available to companies to use or on sell
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Old rules: preventing double taxation
League of Nations creates rules for taxing cross border activity OECD refines rules; double tax treaties prevent double taxation of international capital flows G20 joins with OECD to change the rules radically to prevent double non-taxation 1920s – 1950s – 2010s –
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Residence vs Source
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Old rules: allowing tax competition
Country Rate (%) Ireland 12.5 Singapore 17 Fiji 20 UK NZ 28 Germany 30 US 39
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Allowing tax competition
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Old rules: allowing mismatches
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‘New’ problems
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BASE EROSION & PROFIT SHIFTING
Clever tax planning means multinationals can avoid paying tax anywhere This is unfair and inefficient OECD: 4-10% of Global corporate income tax lost because of BEPS
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New problems: profit shifting Low tax jurisdictions
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New problems: base erosion Panama papers
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11 million records 215,000 offshore entities
Mossack Fonseca Tax avoidance Tax evasion Transparency Secrecy Money laundering Financing terrorism? High wealth individuals Super wealthy families Politicians Sports Stars / Celebrities 11 million records 215,000 offshore entities
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1 Billion search requests per day!
Incorporated 1998 in US Global employees: 64,000 Global sales: $$$$$$$$$$ Global revenue: $$$$ Global tax: $$? Where does Google derive its income? Where does Google pay tax? Google organises the world’s information and makes it accessible and useful 1 Billion search requests per day!
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http://visualeconomics. creditloan
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Double Irish with a Dutch sandwich
1. A customer pays for an ad in Germany 2. Ad agency sends money to its subsidiary in Ireland, which holds the intellectual property (IP) 3. Tax payable in Ireland is 12.5 percent, but Irish company pays a royalty to a Dutch subsidiary, for which it gets an Irish tax deduction 4. Dutch company pays the money to another subsidiary in Ireland, with no withholding tax on inter-EU transactions 5. Second Irish subsidiary pays no tax because it is controlled outside Ireland, in Bermuda or another tax haven Double Irish with a Dutch sandwich
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New rules: Ireland v Apple
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Established in Seattle in 1971
Starbucks Inc. 2016 24,000 Stores 191,000 employees USD $16 billion revenue USD $3 billion income Established in Seattle in 1971
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Starbucks Switzerland Starbucks Netherlands Starbucks United States
pays £ for coffee pays £ for royalties pays £ patent fees Starbucks UK sells 4 billion coffees each year worldwide paid £8.6 million company tax in 14 years
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New rules
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OECD BRIICS Non OECD/BRIICS G20 non OECD
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South & Central America
OECD / G20 Australia Hungary Poland Austria Iceland Portugal Belgium Ireland Slovak Republic Canada Israel Slovenia Chile Italy Spain Czech Republic Japan Sweden Denmark Korea Switzerland Estonia Latvia Turkey Finland Luxembourg United Kingdom France Mexico United States Germany Netherlands Argentina Greece New Zealand Saudi Arabia BRIICS Brazil Russia India Indonesia China South Africa Other countries Fiji Pacific Africa South & Central America Middle East Asia Eastern Europe
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New rules: BRIICS vs OECD view
OECD / G20 Where tax should be paid
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OECD’s action plan Stronger domestic tax laws
Limitation on interest deductions Anti-hybrid mismatch measures Transfer pricing International agreements & cooperation Convention on multilateral administrative assistance in tax matters (1988 /2010) New multilateral instrument – December? Information / transparency AEOI 2012: 101 countries*: 55 countries in 2017, 46 countries in 2018 *Including New Zealand, Australia, Cook Islands & Vanuatu
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Transfer pricing 11. BEPS data collection 12. Aggressive tax planning 14. Dispute resolution 15. Multilateral instrument 1. Digital economy 2. Hybrid mismatches 3. CFC rules 4. Interest limitation 5. Harmful tax practices 6. Treaty abuse 7. Artificial avoidance of PE status 13. Transfer pricing documentation
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New rules: transparency & information
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Exchange of information
Requires tax treaty authorisation Bilateral DTAs e.g. Fiji/NZ Bilateral TIEAs e.g. NZ/Cook Islands Multilateral convention AEOI FATCA On request Spontaneous Automatic
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New rules: Automatic Exchange of Information
International standard to combat cross border tax evasion and money laundering So far 100 countries committed Banks report financial assets and income of non-resident account holders to Revenues in other AEOI countries New rules: Automatic Exchange of Information
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New rules: GST and imported goods
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New rules: GST and imported services
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New rules: tax administration
Digitalisation Real time filing & paying Light touch self-assessment Revenue Facilitating compliance Helping taxpayers get it right Applying a risk based approach to auditing Using both carrots & sticks
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New rules: tax administration
More certainty More accuracy Lower compliance costs for taxpayers Lower admin costs for Government Role of Accountants? New rules: tax administration
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