Old Mill goes International - CIOT European Conference, Milan, October 2017

25 April 2018

It’s said that travel broadens the mind and my trip to Milan to attend the Chartered Institute of Taxation (CIOT) European Conference was no exception.

I was excited to have been invited to represent Old Mill at the conference, hosted by the only professional body to provide a unique and considered focus on international Corporation Tax.  The speakers were to be among the most prominent thought leaders in the profession and the subject matter, Base Erosion and Profit Shifting (BEPS) lies at the very heart of my specialism – international tax (not to mention the prospect of a day in Milan was pretty appealing too!).

BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to shift profits to low or no-tax locations. Over 100 countries and jurisdictions are collaborating to implement the 15 measures introduced by the Organisation for Economic Co-operation and Development (OECD) to tackle BEPS and the UK is a signatory to the agreement. 

The mismatches between geographic boundaries and gaps in legislation have made it possible for entities to do business in overseas territories but avoid paying tax in that location. It has been possible for businesses to organise themselves so that existing double tax treaties have been abused; they have been able to enter into complex instruments so that tax has been payable in one country and not another. The playing field has been substantially uneven and if we throw into the mix the digital economy, with trade across borders where no in-country presence is necessary, then the multiplicity of Corporate Tax regimes globally present a confused landscape that poses a barrier to fair and equal treatment and damages the global economy.

While the subject matter might appear at first sight to be fairly far removed from the day-to-day advisory work undertaken by Old Mill, that is simply not the case. Many of our clients are already engaged in doing business overseas and many more are actively considering expanding into overseas territories to grow their business, so it is in all of our interests that Old Mill should have a seat at the table and remain abreast of current thinking.

The part of the conference that really appealed to my interests concerned BEPS Action 15 – release of a ‘Multilateral Instrument for Tax Treaties’ (MI), presented by Carlo Garbarino of Bocconi University. This is the piece that truly seeks to address imbalances and which presents by far the greatest challenge to me as a tax specialist, advising business already doing business or planning to do business overseas. Put simply, the MI provisions can be divided into three categories

Category 1 – minimum standard

Category 2 – reservations

Category 3 – optional provisions

Countries wishing to join the MI must determine the level of adherence they wish to sign up to so that if a UK client wishing to do business in another country seeks advice, we will now have to consider not only existing agreements between the UK and the other country, but the level at which each relevant nation has adopted the MI, if at all. International tax never was straightforward, it has always been a specialist areas and a one-size-all, ‘google-tax’ answer was never an option. But now, we face an added layer of complexity in doing business overseas.  

By way of example, consider a small UK group of companies that sells its goods overseas in a country called Erehwon. Several of the UK group companies carry out activities in Erehwon which, on their own, do not give rise to a tax liability in Erehwon in accordance with the terms of the Double Tax Treaty between the UK and Erehwon. Then the UK and Erehwon both sign up to the MI. The activities of all the group companies in Erehwon could be added together to give rise to a tax liability in Erehwon where previously there was none.

BEPS is quite possibly the biggest story currently shaping the global economy that you’ve never heard of or read about. It’s difficult. It’s not sexy. It won’t get many column inches and it’s not a vote-winner. But if businesses fail to take advice and refresh their understanding of the new rules, they will put themselves at risk. 

Businesses with an established overseas trade and new market entrants alike need take advice and refresh their understanding of their in-country tax position. To continue to operate based on out-of-date advice is to run the risk of getting it wrong and of paying more tax than necessary. In a worst-case scenario, a business could, unwittingly, establish a taxable presence and fail to fulfil its obligations to comply, with damaging financial and reputational consequences. 

It’s almost impossible to discuss any aspect of doing business in other territories in the current political climate, without reference to Brexit and it would be remiss of me to pass over the topic without some mention. This is not Brexit. This suite of measures is not confined to the European stage but extends globally, having an impact on the way in which UK companies will do business across the world. Any discussion of how the EU member states might react to Brexit and any response from the UK in regard to its own tax regime are a wholly separate issue. What we are dealing with under the MI is a fundamental shift in the treatment of taxation on business conducted by the UK in other countries and it is not too soon to take stock and seek advice. If you would like to find out more about this article, please get in contact.

  • For further information please contact:

    Elaine Kinsella

    Director, Commercial, Tax, Yeovil

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