Global tax reforms and transparency

In this article Sanne’s Shervin Binesh, Lisa Aune and Joe Betts share some of the key developments in corporate taxation.

Levelling up and taxation has never been more important

The pandemic has amplified inequalities in societies and economic forces are putting pressure on Governments to raise revenues in order to address key issues, whilst ensuring greater global tax compliance across the wealthiest individuals and companies. This is against a backdrop of mounting levels of debt and budget deficits, so the spotlight certainly shines on taxation, with a focus on multinational companies, to ensure fair and appropriate levels of corporate tax paid. Sanne’s Shervin Binesh, Lisa Aune and Joe Betts share more on these key developments post the 2021 CGI Conference.

Global tax reforms drivers a greater need for transparency

We see a continued shift in the dial for driving further transparency initiatives across multiple jurisdictions, leading to a heightened need for companies to look at ways of protecting their assets. Corporate services providers, like Sanne, will also need to adapt in line with reforms in offshore locations, especially with the progressive discussions between the leading economic powers following the G7 deal. Subject to how these discussions go, the reforms could enable countries to tax profits made by larger companies based on revenue generated in that country as opposed to the jurisdiction it is located for tax purposes. The other major game changer is the proposed global minimum corporate tax of 15%, which is predicted would generate in the region of £45bn in additional tax revenues.

The OECD Framework

The Organisation for Economic Co-Operation and Development (OECD) has led a global initiative since 2018 to address the tax challenges arising from a digitalised economy. The primary objective of this initiative, under the OECD Framework, is to ensure that digitalised companies carrying out business in places where they do not have a physical presence pay tax in these jurisdictions. Recent updates show that the majority of the 139 member jurisdictions of the OECD initiative have reached an agreement on proposals for a new global tax framework.

The building blocks of the Framework have been well documented over the last couple of years and they are now relatively well known as the ‘Two Pillars’. Pillar One will impose profit allocation rules on the 100 largest multinational corporations, excluding regulated financial services business.  Pillar One will effectively force the re-allocation of certain profits to market jurisdictions. Pillar Two is going to impose a minimum effective rate of taxation on companies which are in scope of the regulations.

A transparent future?

Economic forces are also putting pressure on governments to progressively raise revenues to tackle key objectives and ensure greater tax compliance across the wealthiest individuals and companies. Initiatives like FATCA/CRS reporting and AEOI regimes have all shifted the dial, but there are more recent initiatives which increase transparency of ownership and control of legal entities.

Jurisdictions across the globe have been considering the best way to implement these standards, whilst still protecting the privacy and rights of business owners and shareholders. We’ve seen differing approaches between jurisdictions, and some are more advanced in their implementation of these standards.

Jersey’s government has now passed the Financial Services (Disclosure and Provision of Information) (Jersey) Law, which came into effect at the start of this year.

As a result, the information on the beneficial owners and other significant persons associated with legal entities is collected and maintained by the registrar. This coincides with the launch of a new enhanced online registry system in Jersey. Additional measures include:

  • A requirement for a ‘nominated person’ to assume responsibility for updating the information about beneficial owners and controllers;
  • The move to a UK style annual confirmation statement;
  • The ability for the Jersey Financial Services Commission and other local authorities to facilitate access by a foreign ‘competent authority’ to information;
  • Consequences for failure by companies to comply with the requirements.

Jersey’s Government has publicly issued a response to the proposed Framework in support of the initiatives of the Inclusive Framework in the belief that it will create a level playing field among tax jurisdictions across the world. Jersey’s tax policy is based on the principal of tax neutrality with a strong focus on economic substance and transparency.

We have seen first-hand the substance regulations working with our own clients, as a number of those in scope have made changes to their operations to ensure that they have sufficient substance in place; adding local directors to boards, increasing meeting frequency, adding in additional services for holding companies such as financial statement preparation, treasury services and cash flow management. We have also seen better discussions happening within board meetings and better documentation of the decisions being made at director level.

Information on the beneficial ownership of companies has been registered and publicly available in the UK since 2016.

Other countries around the world have (or have plans to create) beneficial ownership registers. For example, the EU member states were required to have created public beneficial ownership registers by 2020; yet some EU countries still have not fully met these requirements.

A final thought

It is important to highlight that technology will play a key part towards increased transparency. We have seen filings and reporting becoming increasingly digitised, and the launch of new technologies and online platforms by the authorities in each country will undoubtedly act as a means of implementing the requirements.

In summary, it is a delicate balance and tightrope for policy makers and elected party representatives to make. Meeting prior commitments, re-igniting economic growth, and reducing the need for ‘levelling up’ the economy whilst maintaining widespread economic wellbeing is a big challenge for any government. Low–tax jurisdictions will likely continue to focus heavily on tax regulation and compliance, alongside the transparency initiatives. Our advice to organisations is to consider the regulations in force in the jurisdictions you utilise and leverage the expertise of your service providers to ensure that there are no gaps in compliance.

Shervin Binesh, Director, Corporate Services, Sanne

Lisa Aune, Lead Director, Corporate Services, Sanne

Joe Betts, Director, Corporate Services, Sanne

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