ADVOCACY: Breaking through complexity amid global tax reform
As cross-border tax frameworks continue to evolve Kate Barton, global vice chair of tax at EY, explains how key takeaways from the BEPS project can be used as a framework for the current G20-OECD project
Kate Barton’s career has taken her to the top tax role at one of the world’s largest professional services companies, currently serving as global vice chair of tax at EY. What lessons can she share from her journey as cross-border tax enters a new period of transformation?
“The sheer volume of global legislative change is enormous right now,” says Barton. “The recent comprehensive US tax reform is a big element, but many other countries also are making major changes to their tax systems,” she says, noting that one-third of the 48 countries tracked in EY’s annual Tax Policy & Controversy Outlook are undergoing significant
tax reform.
The G20-OECD work on base erosion and profit shifting has significantly changed the international tax landscape, with countries around the world modifying many aspects of their tax systems in response to the recommendations and best practices developed in the BEPS project. The current G20-OECD project on addressing the tax challenges of digitalisation of the economy is an even more ambitious effort. This work is being conducted in real time as digitalisation is transforming operating models for taxpayers and tax administrations alike.
“The pace of digital disruption is a key megatrend we focus on with our clients; it’s taking place at unprecedented speed and scope. But as companies digitalise operations, automate supply chains and offer new digital services, the tax implications need to be considered every step of the way,” says Barton.
At the same time, digital approaches in tax administration are expanding in many countries. “We are going to see uses of technology that we can’t even dream of right now transforming both the way the tax function operates and the way in which business is taxed,” Barton continues.
Barton highlights three key takeaways from the BEPS project that she believes can provide guidance as the current G20-OECD project moves forward.
① Active engagement by all stakeholders – taxpayers, tax policymakers, and tax administrators – is key to development of reforms that are practical and workable
Even though the current G20-OECD project is in the earliest stages, the OECD has already had a public consultation. Barton sees this as a good first step. “The business community provided input throughout the BEPS project; because of that participation, the BEPS recommendations reflected a greater awareness by policymakers of business considerations and taxpayers were better prepared for countries’ implementation of the recommendations.”
The fundamental nature of the reforms contemplated in the current project mean it is essential that taxpayers take the opportunities offered by the OECD to contribute to the discussions, Barton urges.
② True consensus requires a common understanding and full agreement with respect to the specifics of any proposed reforms
“It’s always interesting to see how something can be interpreted differently and to a certain extent, that’s what happened with the BEPS project” says Barton, who notes that implementation of the BEPS recommendations saw both differences in interpretation and use of unilateral measures.
Concern about unilateral measures is one of the driving forces behind the current project and any difference in the application of the types of reforms under consideration would result in double or multiple taxation.
In Barton’s view, this makes common understanding more important than ever. “The G20 and OECD will achieve success with the ongoing work only if the solutions developed are understood and applied by countries in a consistent manner, and there is a commitment not to adopt or continue any unilateral measures,” Barton explains.
③ Robust tax dispute resolution processes are a necessary element of any reforms
Barton is concerned that tax controversy is growing beyond the capacity of existing dispute resolution processes, a problem that will be exacerbated given the likelihood that reforms of the type being contemplated would give rise to disputes that involve multiple parties. “Any new reforms should be back-stopped with effective multilateral resolution processes,” she says. “These should ideally be in place before the reforms are implemented.”
With technological transformation happening faster and faster, its implications will continue to be felt across the spectrum of tax – from tax policy to tax compliance to tax administration. Barton believes that active engagement by all stakeholders will be vital to successfully navigating these waves of change, allowing governments and businesses alike to focus more on adding value and less on managing uncertainty.
