PwC Sweden on the OECD’s tax action plan

Transcript

As news of Starbucks, Google and other multinational corporation’s purported tax avoidance hit the headlines in Europe, regulators struggled to effectively respond to the public outcry – that is, until now. The regulatory antidote to the hysteria has been created by the OECD and trickled down to country level. World Finance speaks to Magnus Johnsson, Head of Tax Services at PwC Sweden, to find out what the regional and local impact will be.

World Finance: Magnus first, can you tell me about what’s spurred on the OECD’s 15-point action plan?
Magnus Johnsson: I think the backdrop would be as you refer to in your introduction, is the fair share of taxes debate we have seen over the last – call it – three to four years. This is not a regulatory debate; this is a morality debate around where the corporates paid their taxes and how much they payed in taxes.

World Finance: So why now are these concerns really leading to action, considering that MNCs have been operating all over the world by nature of being MNCs from time immemorial?
Magnus Johnsson: It’s a good question, I think one the aspects is obviously the consequences of the financial crisis. Territories, countries, they would like to safeguard their tax basis, they need the money. I think there is a slightly bigger question here which is; to look at the international tax system, and I think it’s pretty clear that it’s out of date, they need some reforms on the international tax system as a whole.

[Y]ou have to remember that the changes and the proposed changes are potentially the biggest changes that we will see in international tax systems for decades

I think there is a third aspect and that is that we have seen a number of different stakeholders taking part in this debate, which we may not have seen in the same way before. Stakeholders being governments and tax authorities obviously, corporates but also the public, NGOs and so on. So I think it’s a combination of these three which have put these issues on the table at the moment.

World Finance: So the manifestation of course of these grievances has really been this action plan, yes?
Magnus Johnsson: Yes, absolutely and I think that part of this is that the G20, when they saw the entire discussion after the financial crisis, they commissioned the OECD to put together an action plan in order to address these issues. So they have done, the OECD they came up with their action plan in 2013 and the final reports will come out later on this year. The main objectives of this are two-fold; one is to ensure that corporates are paying taxes in the countries where they conduct their businesses, the second is to prevent double-non taxation. So those aspects of taxes, and call it the discrepancies between different tax systems, is what you want to achieve with the OECD action plan.

World Finance: So do you welcome these changes?
Magnus Johnsson: I think they are inevitable; you have to remember that the changes and the proposed changes are potentially the biggest changes that we will see in international tax systems for decades. It’s definitely the biggest changes that I will ever see in my career. So it’s all about to take a fundamental look at how the international tax system works, so yes I think it’s absolutely necessary. You have to remember that the foundation of the current double tax treaties and modern treaties goes back to the 1970s. Quite a lot has happened since then when it comes to business and global business and global economy.

I think the other aspect of this is there is a need of behavioural changes as well, and I think that the companies and corporations out there, they are starting to adapt to an environment where taxes are not only a cost but an obligation. So there are two aspects here; the behavioural aspect, and regulatory aspect and these two have to go in balance. You have to balance those going forward.

World Finance: How would you conceive of a programme that is mutually beneficial for all parties involved and still have the right regulatory elements included? Do you think that these proposed changes for instance, go far enough to meeting all of those demands?
Magnus Johnsson: It’s a boring answer but we have to wait and see a little bit, we need to see the final outcomes coming – as I said – later on this year. I think from a corporate’s perspective, what they need and what they have to adapt to, they need certainty and they want to have predictability. So of course if we have a period of time where there are uncertainties and unpredictabilities, they don’t like that.

When we see what the final outcome will be I’m sure they will adapt, I think it’s more difficult for them to really think about the fact they also have to think about their reputation so the behavioural aspect is potentially more difficult for them to adapt to compared to the regulatory changes.

World Finance: And let’s talk about the behaviour and experience of international investors. We know that in Sweden in particular, some investors have expressed frustration over growing unease, about how these changes are going to come into play. So from an international perspective do you think that Sweden’s curb appeal as a place to invest in as well as Europe as a continent is going to be in anyway diminished?
Magnus Johnsson: If we look at Sweden I think we have had a history of quite a lot of regulations coming through over the last couple of years. And some of them have been questioned. I think in Sweden we have a situation where potentially we are looking for a bigger tax reform going forward when it comes to corporate taxation. The other aspect in Sweden is that we have seen the tax authorities being increasingly aggressive towards corporates in certain industries. This is something where we have seen international investors asking questions ‘what’s happening in Sweden’, it’s always been a high tax country but it’s always been a very predictable country, and I think that maybe international investors are looking at this and asking what’s happening.