Locations
So much is happening in the world of international tax, that it takes your breath away.
Prior to the banking collapse, subsequent recessions and huge deficits in the UK and European countries, the key European big industrial countries had, for decades, turned a blind eye to the corporate tax advantages of using the low tax countries in Europe as a selling base.
Some of the structures were capable of producing overall tax rates on European sales of single figures of taxation. Many remarked, that a 2-7% overall corporate tax rate was possible.
So, what has happened? The Germans woke up and supported a UK Chairman of the OECD who required a report on it all.
The BEPS (Base Erosion and Price Shifting) report says it all, once you have read and digested it. The report describes how, for the last 30 years, international tax structuring has been planned in different industry sectors. It also includes detailed structure charts. Overall, the report concludes that the tax planning described is 'egregious'.
The impact of the BEPS report and the two subsequent progress reports is compounded by potential illegal state aid payments investigations (subject to judicial review).
So from now on, how should a US corporation structure its European sales? The second BEPS progress report highlights the changes that the individual countries have already made to their taxation systems. The Swiss government has criticised its Cantons' tax regime and is now adopting a single corporate tax rate, whilst Ireland is abandoning the 'Double Irish Sandwich' from the 31st December 2014. After which date, it will not be tax effective to set up a non-resident Irish company. The second progress report also sets out timetables for countries over the next few years.
While individual countries are changing their rules, the big two countries UK and Germany, have also spoken. Along with France, they have lost the most in corporate taxes in the past 30 years. Last Tuesday's press release reveals a meeting of minds between the UK and Germany which will echo for generations. Currently, there is a co-operation and a meeting of minds on the 'UK Patent Box'. Therefore, the devil is in the detail.
We await the possible announcement of a UK anti-avoidance rule. Will it hit the mark?
Watch this space, it is going to be a very exciting time! A tsunami in international tax structuring could be occurring.
Was it all wrong for the past 30 years? No, of course not, it was perfectly within the OECD tax treaty network. But the OECD base approval has gone forever.
David Kent
The author is an International Corporate and Foreign Direct Investment partner at Fieldfisher an international law firm. He has helped around 2000 US companies set up HQs in Switzerland, Ireland, the Netherlands ,Luxembourg,and of course the UK.