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International Tax Planning

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The dirty (or is it?) world of international tax planning – let’s get real

A spectre is haunting Europe – the spectre of tax planning resulting in household name multi-nationals such as Amazon, Google and Starbucks appearing in the Press for all the “wrong” reasons. “Something must be done” scream the pundits…or must it? Argues Margaret Connolly, Partner and Head of Taxation at Reeves.

Let’s face it our Press must have been delighted to have a target as “safe” as an American owned mega corporation to criticise (if only to relieve the pressure from itself!). But is the behaviour of these global enterprises really that reprehensible? Are they really the true successors of the “robber barons” of the nineteenth century?

The narrative appears compelling being supported by a shadowy and well rewarded tax avoidance industry….”a nation that was once the workshop of the world, now concentrates on manufacturing tax losses”, or so the argument goes.

The truth is far more mundane so it’s time to cool the passions of the debate. For example when the UK subsidiary of a US controlled multi-national pays interest to its parent company, it does indeed reduce its UK tax bill; but that money doesn’t simply disappear and does instead become subject to tax in the United States!

Indeed, US corporate tax rates are generally higher than those ruling in the UK, so if the intention were tax avoidance, this would represent a remarkably muddle headed way of proceeding!

Moreover, cross border taxation is governed by a set of well established international regulations and multilateral conventions, which the UK cannot simply uproot on its own initiative – the days when we could “send a gunboat” have long receded into folk memory.

In essence, it would seem that large multi-nationals are facing condemnation for the heinous crime of obeying the rules. What then should be our reaction as tax professionals?

It is tempting to dismiss the current furore as the result of an unholy alliance of politicians with an eye for the main chance and youthful agitators who ought to get a proper job; and to simply hunker down until it blows itself out. This would be a mistake on two grounds.

First, there are parts of the international tax architecture that may not be” fit for purpose” in the age of the digital economy – the so called Permanent Establishment rules being a case in point. It will be necessary to have wide engagement both at a domestic, and crucially, at a global level, if appropriate reforms are to have any chance of success.

Second, for a somewhat cloistered tax community to criticise others in society for thinking politically about tax is to fundamentally miss the point. In an adversarial democracy such as our own, tax is intrinsically political. Our fiscal system needs technical improvement to be sure, but it must also attract the toleration (support might be asking too much!) of those it exists to serve.

We know there is a significant charge sheet, but we also know there is a case for the defence. It is about time that it was heard.

Should you wish to know more, please do not hesitate to contact Margaret Connolly at Reeves 01227 768231 or email