BEPS refers to the shifting of profits of multinational groups to low tax jurisdictions and the exploitation of mismatches between different tax systems so that little or no tax is paid. Following international recognition that the international tax system needed to be reformed to prevent BEPS, the G20 asked the Organisation for Economic Cooperation and Development (OECD) to recommend possible solutions. In July 2013, the OECD published a 15 point Action Plan and the final reports were published in October 2015.
The APPG said that the BEPS proposals "do not deliver the level of transparency needed to restore public confidence in the fairness and integrity of our tax system".
The report said that the introduction of country-by-country reporting as recommended by the OECD is "commendable" but does not go far enough because the information is not made public.
Under the OECD's system of country-by-country reporting, the tax administration in the country where a multinational group is resident will collect information about its activities, and its global income and taxes paid. That information will be automatically exchanged annually with all countries where the multinational operates – but the information will not be publicly available. The first exchanges are expected to start in 2017-2018.
The European Commission has proposed that large multinational groups operating in the EU should have to make public disclosures of key country-by-country information on where they make their profits and where they pay their tax in the EU.
"Transparency is the best way to restore people’s trust and simply providing more information to tax authorities is not enough. We need to open companies’ affairs to proper public account," the APPG report said.
The APPG recommends that the UK should "take the lead" and legislate to introduce public country-by-country reporting for UK publicly quoted companies while pressing the case for public country-by-country reporting on a multilateral basis.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com said: “Not surprisingly, the group calls for greater transparency and in particular public country-by-country reporting. The benefits of such an approach may be less than the committee expects – for example, developing countries may obtain greater benefits from simplifying their tax systems rather than seeking to apply complex transfer pricing principles to voluminous amounts of data. Business is wary of appearing to oppose an 'obvious' good such as more transparency, but the costs as well as the benefits of such an approach need to be properly quantified."
The APPG said that the UK government should be commended for introducing a public register of beneficial ownership of UK companies. However, it said that the government's efforts would be undermined if the Overseas Territories and Crown Dependencies failed to introduce public registers and recommended that it should "use its statutory powers" to compel them to do so.
The committee criticised the UK government for "facing both ways" in its dealings with the OECD. "In public the government has strongly supported the OECD’s process but behind closed doors the government has undermined some of the OECD’s efforts," the APPG said.
The report cites, in particular, the resistance of UK officials to strengthening controlled foreign company rules and the UK's introduction of the patent box favourable regime for the taxation of intellectual property.
"The evidence suggests that while the UK has played an important role in driving international co-operation it has resisted important proposals which could have more effectively avoided profit shifting by global corporations," the report said.
The group proposed that a unitary tax system could be put in place in future, "with formula apportionment overseen by a global body such as the OECD or the United Nations whereby each company would submit one report of consolidated accounts for the global group".
Unitary taxation involves calculating a group's total worldwide profit or loss and then allocating that to each jurisdiction, based on factors such as the proportion of sales, assets or workforce in that jurisdiction. This is in contrast to the current system where each company in a group is taxed as a separate entity and intra-group supplies are treated as made on arm's length terms.
Self said: “It is good to see a cross-party group of MPs showing a greater interest in the process of making tax law, and the report raises a number of interesting points. However, some of its conclusions, such as the recommendation of a move towards unitary taxation, appear to go well beyond its brief, and would require significantly more research before they could be adopted.”
The APPG on Responsible Tax was established in September 2015 to provide a "regular forum for Parliamentarians and a range of other stakeholders to contribute to the ongoing debate on responsible tax". The committee is chaired by Dame Margaret Hodge MP.