1. Global trends in taxation Chris Sanger Global Director of Tax Policy

2. Page 1Global trends in taxation Welcome Page 1 24 March 2011 Budget 2011 Chris Sanger, Ernst & Young LLP (UK) Global Director of Tax Policy Agenda ► Global trends ► Tax approaches ► Corporate taxes ► Other taxes ► Tax administration challenges and approaches ► The future “modern” regime

3. Page 2Global trends in taxation 1 2 4 3 Accelerating pace of globalization Changing model for tax administration Shifting economy Rapid succession of legislative and regulatory changes Trends in tax policy: global developments

4. Page 3Global trends in taxation Trends in tax policy: range of taxes Page 3 24 March 2011 Budget 2011 Tax structures in the OECD area** ** Percentage share of major tax categories in total tax revenue * Including certain taxes on goods and services and stamp taxes Source: OECD

5. Page 4Global trends in taxation Corporate taxes: global trends “ Canada will have the lowest overall tax rate on new business investments in the G7 by 2010. And by 2012, it will offer the G7’s lowest statutory tax rate.” “Invest in Canada” - Canadian Government ► Most major countries are moving toward a territorial approach to taxation ► 2009: UK and Japan replaced worldwide tax systems with territorial tax systems. ► Recent US international tax proposals go against this trend. ► Research incentives to the fore: reform, improvement and introduction for the first time ► Most industrialized countries have reduced corporate tax rates in order to be more competitive ► More than 90% of OECD countries have reduced their top corporate tax rate since 2000; with Japan recently reducing rate to 35.7%, only the US and Brazil remain exceptions ► Two-thirds of the top 50 countries have reduced their corporate tax rate in the last eight years ► Average corporate income tax rate for the top 50 countries has fallen from 37.5% in 2000 to 31.9% in 2010, ( drop of 5.6%)

6. Page 5Global trends in taxation Country2000 statutory corporate tax rate 2011 statutory corporate tax rate Percent change G-7 Canada43.628.5(34.6) France37.834.4 (9.0) Germany52.033.0(36.5) Italy39.531.4(20.5) Japan43.335.7(17.6) United Kingdom30.026.0(13.3) United States39.239.1 (0.3) BRIC Brazil34.0 – Russia35.020.0 (42.9) India42.0 34.0 (19.0) Foreign cos. 42.2 China33.025.0(24.2) UKRAINE3023*(23.3) Note : Includes both national and sub-national revenues. The 26% statutory corporate tax rate in the United Kingdom is effective April 1, 2011 and will drop to 23% in 2015. Japan’s tax rate change from 40.7% to 35.7%, which is proposed, but not yet enacted, would become effective July 2011. France and Italy have discussed lowering their rates. *Drop in CPT rate will gradually increase in Ukraine. Starting 1 January 2014, the CPT rate will become16%. Corporate taxes: rate reductions

7. Page 6Global trends in taxation ► Increased VAT from 20% to 25% ► Reducing some personal income tax rates ► Increase in corporate tax rate from 16% to 19% but abolished 4% solidarity surtax Other taxes: shifting away from corporate tax Some moves to reduce budget deficits Hungary Ireland United Kingdom Mexico Greece SpainIndia ChinaAustralia United States ► After a raft of early 2010 changes, a four year austerity plan was unveiled which included an increase in VAT from 21 to 23% by 2014, as well as a number of additional measures which increase the tax burden on individuals. ► 50% top rate of tax on highest earners (>£150,000) ► Phase out of the tax-free allowance for higher earners (>£100,000) ► VAT increased to 20% on 4 January 2011 ► Bank levy and oil tax increase ► New general consumption tax at 2%, on top of the 15% VAT ► Temporary increase for 2010 in corporate income tax rate to 30% (from 28%) through 2012; reduce to 29% in 2013 and back to 28% in 2014 ► Increased VAT rate to 23%, follows the 2% increase in March 2010, ► 2% VAT increase introduce from July 2010 as part of its “austerity budget” ► Announced that the tax burden would have to rise by as much as 1.5% of GDP ► Announced increased capital gains tax ► Increase in the rate of Minimum Alternate Tax from 10% in 2008 to 15% in 2009 to 18% in 2010 ► Indirect tax reform ► Focus on anti-abuse, indirect capital gains ► New direct tax code expected to be implemented by April 2012 ► Circular (2010) 35: imposition of 3% City Construction Tax and Education Surcharge on all foreign enterprises ► Circular 98 introduces Local Education Surcharge of 2% of total turnover taxes on all foreign enterprises ► Looking to reform GST ► Super-profits tax on mining industry ► Obama Administration proposes $338 billion in corporate tax increases. ► Second VAT increase in 6 months, from 21% to 23% Portugal France ► 2011 Finance Act includes a 0.25% systemic risk bank tax

8. DPD5389 Page 7 Trends in tax policy: competitiveness of a tax system Competitiveness Employment costs Territoriality Red tape Innovation Tax base Tax rate Foreign direct investment What makes a tax system competitive: ► The tax rate ► The definition of the tax base ► The quality of tax policy making ► The way in which tax is administered and collected

9. Page 8Global trends in taxation ► Tax administrators are being asked to police the current tax base more forcefully ► Playing catch-up in a rapidly globalizing world ► Under pressure to get “fair share” of global tax pie ► Sharpening focus on closing the “tax gap” ► Having to work smarter, more collaboratively and more efficiently Tax administration challenges – international flows “ This is also an excellent opportunity to look forward to what I see as the next rung in the evolutionary ladder of international tax administration: the progression from cooperation to coordinated action on global tax issues. As you can see, we’re moving from just cooperation and sharing of information to the very early stages of planning actual coordinated efforts among countries.” IRS Commissioner and OECD FTA Chairman Douglas Shulman, speaking before the OECD and BIAC, 8 June 2010

10. Page 9Global trends in taxation Tax co-operation: the aims of other tax administrations “I think the big thing about JITSIC in particular is that we are today sharing information within bilateral treaties days, no more than weeks, after an event, rather than years as it used to be..” – Dave Hartnett, Permanent Secretary for Tax, HM Revenue & Customs ► Latvia, Lithuania and Estonia agree on Joint Audits in 1999 ► In 2006 the OECD issued “module 5 on conducting simultaneous tax examinations” ► September 2010, joint audit protocols appeared in an OECD report and practical guide issued at the end of the Istanbul FTA meeting. The OECD report identified the need for joint audits and for tax administrators to cooperate and collaborate more closely ► Meanwhile EY has assisted several of its clients with simultaneous audits in some cases involving 7 or more countries ► JITSIC (Joint International TAX Shelter Information Center) founded in 2004 with Australia, United States, Canada and the United Kingdom as its members ► China, France, Germany and Korea now joining ► EY Global Transfer Pricing Reference Guide for 2011 lists 61 countries with Transfer Pricing Regulations ► The same EY TP Reference Guide listed 41 countries in 2008

11. Page 10Global trends in taxation Tax co-operation: tax payers and tax authorities ► Client approach/same time dispute resolution ► Netherlands: Horizontal Monitoring ► United States: CAP Program ► UK ► Risk banding ► Introduction of CRMs ► Alternative Dispute Resolution (ADR) ► Pre-filing (Advance Ruling Practices) ► Post Filing (mediation/arbitration) ► APA’s ► Mutual Agreement Procedures ► Shared objectives? ► Certainty, sooner.

12. Page 11Global trends in taxation International norms: increasing role of international organisations Fiscal strategy G - 20 OECD European Commission World Trade Organization International Monetary Fund The World Bank Inbound tax forum

13. Page 12Trends in International Taxation Looking to the future: a modern regime Global trends ► Taxation choices increasingly governed by competitive environment. ► Greater alignment of interests between different governments ►.. but still areas for tax competition: tax rates or tax base ► International pressure has proved to be successful in aligning tax systems … ► … but not in all areas (environmental, bank levies) Reform considerations ► Simple: Clear and readily applicable law ► Fair: Burden according to one’s means ► Predictable: No surprises ► Manageable:Appropriate tax administration: large business office ► Sustainable:Consistent and apparent direct of tax policy ► Diverse: Range of taxes, no over reliance on one source

14. Thank you!

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