Few people would argue that a key objective of a sound and effective taxation system is to strengthen the public’s confidence that revenue authorities are collecting what is due and payable, and organizations and individuals are paying the amount that laws require and intend them to pay.
But what is that intended amount?
We have heard considerable public debate recently about big businesses and multinational corporations aiming to minimize their taxation obligations, and the role that taxation advisers and professional accountants play in assisting these companies to plan their taxation arrangements.
The behavior and ethics of companies and their advisers are clearly important factors in arriving at the amount that laws require and intend them to pay; however, governments are responsible for promulgating and implementing taxation laws and for international agreements on taxation. It is governments’ responsibility to carefully consider the consequences of their decisions about taxation laws (including the potential unintended consequences) and to amend those laws in an appropriate manner if the results are not as intended.
However, in a globalized, interconnected economy that is no easy task. Consider that:
- The principles underlying taxation codes were typically established many years ago, when the majority of transactions—particularly at an international level—were primarily in physical goods. As a result, they are not necessarily well-suited for today’s environment of truly global companies, with the majority of value deriving from intangible assets.
- Taxation codes have typically evolved in a piecemeal fashion and tend to be very complex, often resulting in a great deal of bureaucracy.
- In a globalized world, issues associated with taxation policy are not restricted to national boundaries, as most nations use their taxation systems as part of their competitive armory to attract and retain foreign investment. One country’s tax incentive is another country’s tax avoidance.
That is why it is imperative that G-20 countries, through the G-20 process, continue to discuss—and cooperate closely on—what can be done on taxation. The aim should be to arrive at outcomes that are clear, operate fairly, and are appropriate for today’s global economic environment.
Initiatives promoting information transparency among revenue authorities are a critical part of this cooperation, and must continue. The work being done by the Organisation for Economic Co-operation and Development (OECD), at the request of the G-20, aimed at enhancing taxation systems and addressing base erosion and profit shifting is important. It highlights the need to ensure that governments have secure revenues and are fiscally sustainable, but also that developing countries receive their fair share. At the same time, it is essential that any proposed changes are appropriate in scope and have been properly thought through, so that potential consequences to global trade and competitiveness are fully understood.
For the G-20 to achieve its economic growth strategies and goals, meaningful actions and outcomes on taxation must be a high priority.
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