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Appendix A: Summary of International Reports

Date

UK — UK House of Commons Report

  1. The UK House of Commons Committee of Public Accounts has made a number of recent inquiries on aspects of the taxation of multinational enterprises. In November 2012, the Committee's 19th Report examined the issue of tax avoidance by multinational enterprises in the context of reviewing the annual report of Her Majesty's Revenue and Customs (HMRC). The Committee concluded that 'international companies are able to exploit national and international tax structures to minimise corporation tax on the economic activity they conduct in the UK' (House of Commons Committee of Public Accounts, 2013, p. 3). The Committee was also critical of what it described as 'a complete lack of transparency' about the amount of tax paid by multinational enterprises (ibid).
  2. Among other things, the Committee recommended that HMRC and Her Majesty's Treasury develop best practice standards in relation to the information companies should release publicly about their tax practices and lead international efforts to reform tax rules that allow tax avoidance through profit shifting (House of Commons Committee of Public Accounts, 2013, p. 5).

US — US Congressional Budget Office report, 'Options for Taxing US Multinational Corporations' January 2013.

  1. This report examines policy options for the US to move closer to either a worldwide or territorial approach to taxation (Congressional Budget Office, 2013). It also explores several approaches to addressing particular concerns about the current system of taxation. All approaches would affect the investment strategies of multinational corporations and reporting of income as well as US revenues from corporate income taxes.
  2. It provides an overview of the worldwide and territorial approaches, before explaining and detailing the current tax treatment of US multinational corporations and some of the weaknesses of the current system. Profit shifting opportunities are discussed before reporting on estimates of the cost of profit shifting.
  3. Amongst other things the report discusses the merits of removing the 'check the box system' and modifying the deferral rules.

France — Taxation of the Digital Economy (the Colin & Collin report)

  1. The French Government commissioned a report on the taxation of the digital economy by Pierre Collin (a member of the French Conseil d'Etat) and Nicholas Colin.29 The final report concluded that as a result of the way digital economy businesses 'regularly and systematically' collect, monitor and exploit users online activities, the boundary between production and consumption had been blurred.
  2. The report makes the case for the international recognition of the concept of 'permanent virtual establishments' to reflect the view that a proportion of profits made by businesses in the digital economy derives from people in a country sharing their personal information. The report also puts an argument for France to unilaterally impose a tax on the collection of data. The report suggests that data is the only tax base that ensures neutrality across the digital economy.

New Zealand — Tax Policy report: Taxation of multinational companies

  1. New Zealand's Inland Revenue report explains concerns about the amount of tax paid by multinational enterprises and how New Zealand and other countries are responding (New Zealand Inland Revenue, 2013). It also provides a brief summary of New Zealand's existing rules for ensuring multinational enterprises are taxed on activities that they perform in New Zealand.
  2. Reference is made to activities Australia is undertaking such as the scoping paper, transfer pricing and Part IVA revisions. Recommendations are made to continue supporting the work of the OECD and for New Zealand to coordinate with Australia, noting both countries have similar approaches to international tax policy design and tax treaties. The paper discusses ineffective CFC rules and the ability to arbitrage between domestic laws, mentioning cross border arbitrage using hybrid instruments between Australia and New Zealand.

EU — European Commission report: An Action Plan to strengthen the fight against tax fraud and tax evasion

  1. In December 2012 the European Commission released a communication to the European Parliament and Council entitled 'An Action Plan to strengthen the fight against tax fraud and tax evasion'. The action plan contains actions which EU Member States consider are needed to strengthen tax collection. The action plan seeks to increase administrative cooperation, close a number of value added tax and tax saving loopholes and implement an anti-fraud and tax cooperation agreement that will utilise transparency and exchange of information mechanisms to combat tax evasions.

US — United States Senate Permanent Subcommittee on Investigations (SPI)

  1. On 20 September 2012, the SPI convened a hearing on 'Offshore profit-shifting and the US Tax code.' Participants included academics and officials as well as corporate executives (Microsoft and Hewlett Packard) and a consulting firm (Enrst & Young)—from whom documents were subpoenaed.
  2. The SPI made a number of findings including that there are some current weaknesses in the current tax code's transfer pricing regulations and ambiguity in certain accounting standards. Check-the-box and 'look-through' rules were also found to have undermined the intent of the United States CFC rules.

UK — United Kingdom House of Commons Committee of Public Accounts (CPA)

  1. On 12 November 2012 the CPA convened a hearing on tax avoidance by multinationals to provide a greater understanding of possible corporate tax avoidance. Starbucks, Amazon and Google were invited to appear as witnesses. The key finding was that the UK profit shifting rules and their administration are currently inadequate to grapple with the tax planning strategies undertaken by multinationals.
  2. In the 2011-2012 financial year there was a decrease in corporate tax of £6.3 billion (despite an increase in total revenue). The report also stated that multinationals appear to be profit shifting by using transfer pricing, royalty payments for intellectual property and/or franchise payments to other group companies. The Committee was roundly critical of the multinationals and described the evidence as 'unconvincing and in some cases evasive'. The Committee report was also heavily critical of the Her Majesty's Revenue & Customs.
  3. On 31 January 2013 the Public Accounts Committee in the United Kingdom convened its

    second hearing on tax avoidance, hearing evidence from the Big Four consulting firms. The four firms agreed that international taxation rules were out of date and need to change to reflect the reality of modern business. The committee heard useful examples of ways of better matching taxation with economic activity, as used in some US states. Simplicity was identified as key to fighting tax avoidance as the four firms agreed with the committee that the existing tax law was too complex. This extended to greater transparency over companies' tax affairs, which could increase the pressure on multinationals to pay a fair share of tax in the countries where they operate.


29 The full report (in French) is available at:

Le portail du ministere du redressement productif. An (English) summary of the report by one of the authors is available at:

the Frobes website.