Tax Consciousness And Trust In International Tax Planning: The Substance Of The Matter

The international tax community is becoming increasingly aware of the global trend to combat tax evasion backed by the G20 as well as the EU and promoted by the OECD with a mandate of implementation. The reasons for this unprecedented collective action are deeply rooted in the aftermath of the financial crisis that began in 2008 and, for many countries, is still ongoing. Nevertheless, one could also argue that the strong and definitive measures which the OECD intends to employ to battle tax evasion are the indirect results of a large scale lack of tax consciousness.

The OECD's chosen weapons in this war on tax evasion are resourceful and include a Base Erosion and Profit Shifting (BEPS) Action Plan, Automatic Exchange of Tax Information through a Common Reporting Standard, new Transfer Pricing guidelines, country by country reporting of revenues and profit. In short, initiatives aimed at not only illegal practices but also tax planning strategies that take advantage of current rules, exploit gaps and 'mismatches' in laws with a view to shifting profits and making them 'disappear' for tax purposes. In essence, measures that will put an end to the abuse of double tax treaty benefits implemented almost a century ago with a view to facilitating cross-border business.

While the intention of the international community to eliminate aggressive tax practices may be noble and in fact extremely necessary in the face of shortage of liquidity experienced by countries worldwide, skeptics fear that implementation of these measures will be the sledgehammer that breaks the fragile economies of countries that have benefited (and continue to benefit) from flexible and attractive taxation regimes. On a similar footing, it is feared that these measures could backfire creating double standards among competing jurisdictions that have traditionally prospered from strong financial services sectors based on loose taxation systems. From the commercial side, such measures could drive those highly sought-after, golden-egg bearing multinational corporations to remote jurisdictions in their effort to safeguard corporate profits from high taxation rates. The OECD actions may appear to offer solutions but are they really directed at the root of the problem? Is actual tax compliance the issue or is that part of a wider problem being the degradation of tax consciousness on a global scale?

It is particularly challenging to expect from multinational corporations employing...