Tax: Has it fuelled the financial crisis?
Tax policies around the world have inadvertently fuelled the global financial crisis by encouraging companies to use debt rather than equity, says ACCA (the Association of Chartered Certified Accountants) in a policy paper called Competition or Co-ordination: Reassessing Tax in a Global Environment.
Chas Roy-Chowdhury, ACCA's global spokesperson on taxation issues says: "G20 leaders have proposed improved co-ordination between national authorities as a key aspect of restoring confidence in global financial regulation. But is there a need for similar action in the field of taxation?
"Our paper examines the most topical international tax issues, from tax havens to tax competition. Distortions and inconsistencies in tax systems need to be ironed out. Global co-ordination is vital to make sure that tax is fair and transparent."
The policy paper offers seven clear recommendations to tackle global tax issues:
1. Governments should address national tax rules which distort behaviour, and reward one financing route over another. Care should be taken to avoid sudden changes, as this could require significant wholesale restructuring that could have unintended consequences.
2. Tax havens should provide freely information to governments about nationals who use those jurisdictions, but large nations should not focus attention on tax havens as a distraction from the need to sort out their own finances.
3. The EU and other leading nations should act to iron out the remaining barriers to free trade, and continue to refrain from pressuring 'flat-tax' countries to raise their tax rates in the name of 'harmonisation'. National sovereignty in tax policy should be respected.
4. Governments should address substantive issues of tax law that cause distortions, rather than relying on headline corporate tax rates and 'holidays' to attract FDI. By keeping the system as simple and homogeneous as possible, the certainty which business needs will be provided.
5. To increase certainty for businesses the Organisation for Economic Co-operation and Development (OECD) and national revenue authorities should re-examine their policies on transfer pricing.
6. Governments must take a holistic view of the place of green taxes in their tax systems. These taxes do have a role to play, but too much reliance should not be placed on them. Global co-ordination is needed to maximise the impact of environmental taxation.
7. Consideration should be given to independent tax committees playing a key role in the creation of tax policies.
Chas Roy-Chowdhury concludes: "We believe the recommendations made in this report would go a long way to addressing some of the challenging current issues in the field of international tax. Tax policy is and must remain in the hands of sovereign national governments, which should be able to run regimes suited to their stages of economic development, such as the flat-tax systems in post-communist countries in Eastern Europe."
For further information please contact:
Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
Andrew Swailes, ACCA Newsroom
+44 (0)20 7059 5823
+44 (0)7525 392535