Tax News & Views International Weekly: Tax Transparency in the Outback

Last year Australia enacted one of the most aggressive international tax transparency reporting rules in the country—and despite strong pushback from many multinational companies and organizations, it is still on track to apply it, effective this year.

The reporting regime is a variation of country-by-country reporting rules that have been used by many jurisdictions, and which were recommended by the Organization for Economic Cooperation and Development in its 2015 Action Plan on Base Erosion and Profit Shifting. The difference is that Australia’s will require public reporting for many (although not all) global jurisdictions, a concept that the business sector has been fighting back since the idea was first suggested decades ago.

Many business groups are now appealing to the Trump Administration to step in. A Sept. 12 joint open letter from the U.S. Chamber of Commerce, the National Association of Manufacturers, the Information Technology Industries Council and others asks the administration and Treasury to “engage with Australian authorities to address that country’s infringement on US companies.”

That could mean a dialogue—or a more aggressive response, such as the threatened retaliation that Trump has promised against European digital services taxes.

Under the OECD’s system, companies are required to submit to tax authorities global blueprints of their operations, with factors such as workforce, income and taxes paid by jurisdiction. In theory, this helps administrations with “risk assessment”—identifying potential areas where tax avoidance may be a concern. For instance, if a jurisdiction has a high amount of taxable income, but low numbers of employees and little in cash taxes paid, it could be a red flag.

The European Union considered a public reporting system, but ultimately backed down and only required aggregated data for outside the EU. Australia’s newly enacted system will require both Australia-based companies and those doing with at least AU$10 million in revenue (about $7 million in U.S. dollars) in Australia to publicly release data about their activities there—and similar data in “specified jurisdictions,” a list of countries often thought of as tax havens. For the rest of the world, the companies can either release similar data, or publish it in aggregated form.

Nonprofit advocacy groups like the U.S. FACT Coalition have praised Australia’s law for providing “the public with a deep look into the tax and operational practices of many of the world’s largest corporations,” and claim it will highlight alleged corporate tax avoidance.

But according to the industry letter, the new reporting regime “is a clear case of a foreign government asserting extraterritorial authority over US companies with far-reaching, unacceptable implications for the competitiveness of US companies in the global market.”

While the regime doesn’t target U.S. companies or even single out specific industries like administration claims DSTs do, it would put them at a disadvantage to companies which aren’t present in Australia and don’t have to follow the rules, the letter claims.

At one time, the movement towards full tax transparency seemed all but inevitable. At the forefront, the fate of the Australian regime could determine whether this kind of reporting becomes commonplace, or an aberration.

Noteworthy Items This Week

Will the Supreme Court Sustain the Tariffs? – Lee A. Sheppard, Tax Notes ($):

Certainly the Trump administration could have done better, but that would take more time. It acted hastily. It proceeded under the IEEPA for a quick imposition of broad tariffs, instead of under any one of several legislative delegations of tariff authority, which require findings that take time to compile. The motivation for quick, comprehensive action may have been to kick-start a recalibration of international trade relations, but the Acela corridor establishment doesn’t want any recalibration whatsoever. The administration has announced a bunch of deals, none of which has been reduced to writing. U.S. Trade Representative Jamieson Greer said that the court defeat would not impede negotiations and that counterparties were already acting on their commitments. “This clearly is the best and most flexible tool for the president to use,” he said.

GOP Taxwriters Urge Trump to Pressure U.K. on Digital Tax – Stephanie Soong, Tax Notes ($):

The U.K. government’s retention of its DST is contrary to its promise to treat U.S. companies fairly, and if the tax remains in place, it will set a dangerous precedent for other jurisdictions that either have DSTs or are considering implementing them, like Poland and Slovakia, the letter says. “It is therefore essential that the U.K. removes this tax promptly,” it adds.

If the United Kingdom doesn’t agree to roll back its DST, “reopening the Section 301 investigation into the DST would be a necessary and appropriate action,” the letter says.

UK’s Digital Tax Regime Catches Non-Residents, Groups Warn HMRC – Somesh Jha, Bloomberg Tax ($):

The two bodies warned the way HMRC defines “relevant activity” that would be subject to the regime in the draft legislation would pull overseas businesses of taxpayers with UK-source income into MTD, even though there would be no tax charge on the foreign income.

Opinion: Why Location Matters for Borderless Workers and Value-Added Tax – Aleksandra Bal, Stripe.com, Bloomberg Tax:

Global mobility has a variety of tax angles, but discussions often focus on income tax and Social Security. Value-added tax is frequently an afterthought. That’s a mistake.

As work becomes increasingly borderless, understanding how VAT applies is critical. The first step is to know where obligations begin and ensure they’re addressed before they become a problem.

BEPS At 10: The Global Tax Revamp That's Still Unfolding – Natalie Olivo, Law360 Tax Authority ($):

Recent data indicates that major U.S. multinationals repatriated their intellectual property after the TCJA, which shares some DNA with BEPS guidance on how to steer a company's controlled foreign corporations away from tax havens. Specialists say that these CFC rules and other BEPS guidelines helped tackle the most brazen forms of tax avoidance, but that the results didn't show up right away — suggesting the OECD shifted to a more ambitious overhaul, known as BEPS 2.0, too quickly.

It's objectively true that the international tax system started to reflect more alignment of profits with substance after BEPS 1.0 and the TCJA, according to Alan Cole, a senior economist at the Tax Foundation.

"BEPS 1.0 happened in the time where the international system was much less coherent than today, and it had a lot of success by simply fixing the most obviously incorrect stuff," he said.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Diamond Jack

Debut Year: 1940

Debut Publication: Slam Bang Comics #1

Origin Story: Jack was given a magic ring by an old magician, which he uses to fight crime.

Superpowers: The ancient, mystical ring gives him near limitless powers, from flight and superstrength to the ability to manifest objects.

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.

Tax News & Views International Weekly: Tax Transparency in the Outback

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Alex Parker