30th July 2020
The global tax community has certainly been full of discussions around the latest developments regarding Apple in the last few weeks. Following the overturning of the 2016 ruling which originally found that the tech giant had to pay back taxes after it allegedly received illegal tax breaks in Dublin, there’s certainly been a lot of discussions as to what this means for compliance. However, while in this instance the firm doesn’t have to pay Ireland the €13 billion original claimed, Apple hasn’t always been so lucky and has faced penalties in the past. And looking towards the future, we’re certain that global authorities will be taking action to prevent multinationals from capitalising on low-tax states – in fact, many already are.
Here’s what recruiters need to know when it comes to the latest in tax compliance developments overseas.
G20 plans multinational action by the end of the year
While the announcements weren’t directly linked, it’s perhaps no surprise that in the days following the Apple news, G20 finance ministers and central bank governors revealed their intention to push ahead with plans to agree new rules on taxing multinational groups by the end of this year.
In a statement earlier this month the G20 ministers revealed that, despite the disruption that Covid-19 has caused, they are still committed to reaching a consensus and will continue to work on the two pillars of the reform:
- Pillar one: a reform to allocate extra tax rights over multinational group income to the countries where the group’s customers reside
- Pillar two: imposing a new, internationally co-ordinated minimum tax to be applied to multinationals
Under pillar one blueprints, steps have already been made to define the classification of automated digital services and consumer-facing businesses. Under proposed new rules, it will be easier to determine “when a business can be seen to have a significant and sustained engagement in a market, and the related source rules to allocate and measure revenues derived from a market.”
Pillar two isn’t perhaps as far along in the approval stage, but according to the OECD Secretary-General:
“Further discussions are underway at the technical level to finalise the design of the four rules as set out in the Programme of Work: a) the income inclusion rule; b) the switch-over rule; c) the undertaxed payment rule; and d) the subject to tax rule. Regarding the key design features of Pillar Two, work has substantially progressed on the definition of the tax base including the list of permanent adjustments and the definition of covered taxes. Further considerations are being given to carve-outs, the design and scope of the above-mentioned four rules, the co-existence with the US GILTI and BEAT regimes and the minimum tax rate. Finally, work is ongoing on simplification options to reduce compliance costs associated with jurisdictional blending.”
A unified approach?
How this all pans out is, of course, up for debate. For pillar one in particular, the ministers face a real challenge given that the US opposed the ‘unified approach’ outlined by the OECD at a late stage in the negotiations. Regardless of what happened next, though, the G20 has certainly made it clear that steps will be taken to ensure a fairer tax system. In fact, in the full communiqué released by the ministers, it was stated that:
“We will continue our cooperation for a globally fair, sustainable, and modern international tax system. We acknowledge that the COVID-19 pandemic has impacted the work of addressing the tax challenges arising from the digitalization of the economy. We stress the importance of the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to continue advancing the work on a global and consensus-based solution with a report on the blueprints for each pillar to be submitted to our next meeting in October 2020.
“We remain committed to further progress on both pillars to overcome remaining differences and reaffirm our commitment to reach a global and consensus-based solution this year. We welcome the progress made on implementing the internationally agreed tax transparency standards and the progress made on the established automatic exchange of information, as well as its advancement, marked by the agreement on the model reporting rules for digital platforms for interested countries. We welcome the annual BEPS Progress Report of the G20/OECD Inclusive Framework on BEPS. We also welcome the Progress Report of the Platform for Collaboration on Tax and continue our support to developing countries in strengthening their tax capacity to build sustainable tax revenue bases.”
What this means for recruiters and tax compliance concerns
While many readers of this blog are perhaps unlikely to operate on a scale akin to Apple, for recruitment agencies that are placing contractors internationally, it does demonstrate the need to ensure your business, its consultants and the expats you’re working with are fully compliant. Regardless of what’s happening across the globe with regards to COVID-19, tax compliance remains a top priority for authorities, and you can rest assured that any wrong-doing will be addressed.
In fact, with governments seeking to claw back lost funds, it’s highly likely that international operations will be under greater scrutiny, and your firm could unintentionally be exposing itself to risks due to a simple mistake on the behalf of a contractor. We know first-hand just how difficult international compliance is, and with the likes of the Criminal Finances Act 2017 placing the onus on recruitment businesses to ensure they have the right processes in place to prevent the facilitation of tax evasion, protecting your agency now is crucial.
Perhaps more importantly, though, recruitment companies don’t need to take on the challenge of managing their international compliance alone – in fact we’d recommend avoiding approaching this without expert guidance altogether. The sheer number of nuances in terms of tax compliance across borders mean it can be a real minefield – one that’s wrought with potential penalties for those that make even the smallest mistake.
That’s why we’d advise seeking expert advice from qualified sources with the experience and connections on the ground to support your contractor management, no matter which international markets you’re tapping into. Why not contact the team today?