From a fiscal point of view, the willingness to pay taxes is also a historically grown challenge regarding companies that rely on aggressive tax planning. How to deal with tax avoidance practices internationally was the nucleus of discussion at a joint policy web seminar held by SAFE and the Institute of Banking and Finance History (IBF) as part of the SAFE Policy Lecture Series – with the result that the effective exchange of information between national tax systems is increasingly important.
In his keynote speech before the debate, SAFE Fellow Alfons Weichenrieder emphasized that it is difficult to improve tax compliance of both individuals and multinational firms. However, two approaches were promising: a prudent fiscal policy by governments on the one hand and bilateral and multilateral agreements and procedures to set standards for the exchange of tax information on the other hand including Country-by-Country Reporting (CbCR), a standard already set by the Organization for Economic Cooperation and Development (OECD). "Such mechanisms ensure greater transparency," Weichenrieder said. Tax-aggressive companies are thus gradually losing the ground for unfair tax practices by their subsidiaries.
Information exchange discourages aggressive tax saving models
Moderated by René Höltschi, economic correspondent of the Neue Zürcher Zeitung in Berlin, the subsequent discussion showed that, especially in the case of base erosion and profit shifting (BEPS) of companies, the exchange of information between tax authorities is an effective countermeasure. As a result, "companies have become more reluctant to adopt aggressive tax-saving models", said Christine Osterloh-Konrad, professor of civil law, commercial and corporate law, tax law and philosophy of law at the Eberhard Karls University in Tübingen.
When assessing whether a tax system is fair, the absolute level of the tax rate is less important. Rather, the decisive factor is whether the tax legislation is in line with society's specific sense of justice, explained Korinna Schönhärl from the history department of the Goethe University Frankfurt. "Lower taxation of companies can indeed compensate for other locational disadvantages", Alfons Weichenrieder added, "but harmonization of international tax rates misses the point that tax regulations should be the focus of the debate".
From the perspective of companies, fair means being treated fiscally not worse than competitors as Dr. Uwe Eppler of Norton Rose Fulbright pointed out. According to him, tax planning of firms is not immoral since legislation opens leeway by legally determined differences.
The panel saw existing challenges for tax policy makers primarily in the taxation of digital business models and in tax competition between states.