Global Trends in International Taxation Marek Herm Tax counsel Raidla Lejins & Norcous
Global Tax Competition (1) � During the last 15 years the reduction of income tax rates has been the prevailing trend in the whole world. � The reduction of rates concerns both companies and individuals. Top rates of personal income have in some cases more than halved. � Net wealth taxes have almost disappeared (now in only 3 OECD countries). � Many countries have either reduced or eliminated inheritance taxes. � The reduction of CIT rates is expected to foster investment and employment. 2 ¡
Global Tax Competition (2) � The driving force behind the tax competition is globalization. � It is even more important within the European Union. � In 2004, 10 new Member States joined the EU. � The new states had generally lower tax rates than in old Member States. � During the last 10 years the old Member States have considerably reformed their tax systems. 3 ¡
Global Tax Competition (3) � Enterpreneurs see tax rates as one of the most important elements when making investment decisions. � But how far can the governments go in this ‘race’? 4 ¡
Global Tax Competition (4) � Lowest corporate tax rates in EU � Bulgaria 10% � Ireland 12,5% � Cyprus 12.5% � Estonia – 0% on retained profits, 21% on distributed profits 5 ¡
Global Tax Competition (5) � Recent reductions in EU countries � Germany from 25% to 15% in 2008. � UK to 23% in 2013, 21% in 2014 and 22% in 2016. � Finland from 26% to 24,5% in 2012. 20% from 2014. � Denmark 25% in 2006. 24,5% in 2014, 23,5% in 2015 and 22% in 2016. � Sweden from 26.3% to 22% in 2013. � Estonia (distribution tax) from 21% to 20% in 2015. 6 ¡
Global Tax Competition (6) � Non- EU countries � Russia from 24% to 20% in 2009. � Mexico from current 30% to 29% in 2014 and 28% in 2015. � Norway from 28% to 27% in 2014. 7 ¡
Global Tax Competition (7) � US currently 35% (almost 40% if state taxes are also taken into account). No tax on overseas profits. � Proposal of Senat’s Finance Committe of 19 November 2013 - international business tax reform which proposes a modern, competitive, simpler, and fairer international tax system by means of: - one time 20% tax on an estimated $2tn cash held overseas; - elimination of domestic tax breaks; - reduction of corporate tax rate to between 25-30%, etc. � Will it succeed? 8 ¡
Global Tax Competition (8) � Opposite developments in EU � Slovakia from 19% to 23% in 2012 � Cyprus from 10% to 12.5% in 2013 � Greece from 20% to 26% in 2014 9 ¡
Broadening of the tax base � Irrespective of the reduction of income tax rates the overall tax burden has remained approximately the same. � To set-off the negative effect of rate reductions the states have considerably broadened their tax base. 10 ¡
Shift to indirect taxes � Reduction of income tax revenue is compensated by the increase of indirect tax revenue. � 17 Member States have raised VAT rates since 2008. Globally, the number of countries which has a VAT system has trippled. � Excises, environmental taxes, etc. � Financial transactions tax? 11 ¡
Fight against tax avoidance (1) � Fair tax competition vs harmful tax competition. � Fight against harmful tax competition has taken place from the end of ’90s. � OECD actions � EU actions – Code of Conduct for business taxation 12 ¡
Fight against tax avoidance (2) � UK “patent box” regime � Switzerland � Infringement of EFTA treaty? Process started in 2007. � The application of the cantonal holding company regime to income other than participation income is under the EU critics. In addition, income from foreign sources is less taxed than Swiss-source income. � EU member states reserved their rights unilaterally to adopt measures against Switzerland and Swiss-based companies � EU Member States have recently rejected a conditional offer by Switzerland to repeal cantonal tax regimes targeted by the EU Code of Conduct group for unfair taxation. 13 ¡
Fight against tax avoidance (3) � European Commission’s soft law instruments from December 2012. � Recommendation on Agressive Tax Planning. � Recommendation regarding measures to encourage third countries to apply minimum standards of good governance in tax matters. � Action Plan to strengthen fight against tax fraud and tax evasion. 14 ¡
Fight against tax avoidance (4) � Exchange of information agreements � FATCA (Foreign Account Tax Compliance Act) legislation enacted by the United States in 2010. � Automatic information exchange being developed by the OECD, which is expected to come into force in late 2015 or early 2016. � Multilateral Convention on Mutual Administrative Assistance in Tax Matters � Pressure to eliminate bank secrecy (Lichtenstein, Luxembourg, CH) � Tax treaty anti-avoidance and exchange of information provisions � Actions of G8 and G20 15 ¡
Fight against tax avoidance (5) � G20 leaders’ declaration from September 2013 � “Profits should be taxed where economic activities deriving the profits are performed and where value is created. In order to minimize base erosion and profit shifting (BEPS), we call on member countries to examine how our own domestic laws contribute to BEPS and to ensure that international and our own tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.” 16 ¡
Fight against tax avoidance (6) � G20 leaders’ declaration from September 2013 � “Calling on all other jurisdictions to join us by the earliest possible date, we are committed to automatic exchange of information as the new global standard. We expect to begin to exchange information automatically on tax matters among G20 members by the end of 2015. We call on all countries to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters without further delay.” 17 ¡
The world will be more transparent... � ...to tax authorities � “More uncertain future, one in which agressive tax planning schemes come under increased scrutiny and tax administrations have unprecedented access to information” ( Jeffrey Owens, former head of OECD’s Centre for Tax Policy and Admiinistration ) 18 ¡
Thank You! Visit: www.financeestonia.eu 19 ¡
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