The Autumn Statement: Diversion Ahead?

The Autumn Statement was quite a mixed bag, at least in part, aimed at the elections in May. There was the usual pre-election tax giveaway, combined with some strong economic governance messages, all packaged with a big blue ribbon. It will provide plenty of ammunition for all parties to use in the campaign. So there’s something to look forward to!

One of the hottest topics of this parliament has been the taxation of multinationals, and the Autumn Statement included the awaited so called “Google Tax”. And so, the detail. Oh. So we need to wait a little longer for that then.

There has been much debate over the last few days over how the “Google Tax” might work and what it might mean for UK businesses. Indeed, it has seen some well know bloggers at loggerheads in a way I’ve not seen before over a proposal we’ve not even really seen yet. I look forward to much more of this in a few days, when we see a bit more about what this new tax will look like.

What seems more interesting to me at the moment is to consider the context of the announcement. I will consider two angles. The tax policy arena, and the business environment.

The tax policy arena

The UK government, along with the rest of the G20 and others, have been congratulating the OECD on the work of the BEPS project, and climbing over each other to endorse and adopt the proposals, or at least the transparency ones. The process of having a multilateral group like the G20, commission a multilateral organisation like the OECD to come up with a multilateral solution, seemed to have a common theme running through it. You may have spotted it. I’m not suggesting that BEPS has met with universal approval, but most have at least acknowledged that the multilateral approach is the right way to go.

The “Google tax” is a very visible example of unilateral tax reform outside of the OECD BEPS process. I’m sure the government would argue that it is going in the same direction as BEPS, and reinforces the project. That’s not how most people are seeing it. Even Tax Justice Network, who have been some of the most vocal critics of the perceived abuses by multinationals suggest the UK is “jumping the gun” by seeming to “introduce a new special tax, not modify international tax rules.”

The ICAEW Tax Faculty says: “It is therefore rather odd that the UK government seems to be acting on its own, on a unilateral basis, without waiting for other countries to take action.”

So the key question many are asking is how does this radical (or not, depending on your view) proposal from the UK marry with the multilateral approach of BEPS.

From what I can see at the moment, it doesn’t, which opens up plenty of speculation as to what this means for BEPS going forward.

The business environment

With much of the focus on policy makers and campaigners, it is worth reflecting on what multinationals want, which contrary to the popular press is not simply to pay no tax! If you ask a group of tax directors of large businesses the characteristics of good national and international tax rules, the top answers will be:

• Certainty
• Stability
• Transparency
• Simplicity

The approach being taken by the OECD may not be perfect, but a consultative multilateral approach, leading to open, transparent and informed tax reform is the best way forward for business.

The question we are left with it this. Issues of international tax are still on the agenda, and the bus is heading in the direction of new laws to realign the taxation of multinationals with the economic activity.

I don’t think the question here is about the general direction of travel of the bus. The question is the exact destination, and the route to get there. To understand these, the big question is this. Who’s driving the bus?

• Is it the G7/G20 acting collectively? This seems unlikely, as the UK (Google tax), Ireland (double Irish) and US (anti inversions rules) have moved unilaterally.
• Is it the OECD? This seemed plausible when the BEPS announcements were made in September of this year, but the unilateral moves since then have put a big question mark of this.
• Is it the European Commission? Although active in challenging certain EU Member States on their tax regimes, the wider international context does not seem to be on the EU agenda, at least for now.
• Is it individual sovereign states? The evidence at the moment seems to point this way, although it’s not clear. Political, and in some cases more urgent electoral pressure may have driven some countries down this route already, and there is the possibility that others will follow.

So what does this all mean for the bus? Firstly, if we are unsure as to who is driving, and if as I suspect there are lots of different would-be drivers vying for the wheel, the route and destination are far from clear. Indeed, the destination may end up being somewhere none of those grabbing at the wheel are intending.

And what does this mean for business?

• It means increased tax risk, with uncertainty as to who might make the next unilateral change in the tax rules.
• It means scope for greater complexity, with inconsistent reform proposals in different countries.
• It means a lack of transparency over the route and destination of travel.

So, all in all, looking back at the characteristics of a good tax regime, the bus we are travelling on looks to be taking a winding route for quite some time yet. Roll up for the mystery tour!