Accountants say tax policies behind financial crisis

(CNS): Tax policies around the world have inadvertently fuelled the global financial crisis by encouraging companies to use debt rather than equity, ACCA (the Association of Chartered Certified Accountants) has claimed in a policy paper called Competition or Co-ordination: Reassessing Tax in a Global Environment. The industry body says that the inconsistencies in tax systems need to be ironed out, that G20 nations should be focusing on addressing their own tax problems before those of tax havens, and national sovereignty in tax policy should be respected.

Chas Roy-Chowdhury, ACCA’s global spokesperson on taxation issues, said that while G20 leaders have proposed improving co-ordination between national authorities as a key aspect of restoring confidence in global financial regulation, there is a need for similar action in the field of taxation.  “Our paper examines the most topical international tax issues, from tax havens to tax competition. Distortions and inconsistencies in tax systems need to be ironed out. Global co-ordination is vital to make sure that tax is fair and transparent,” he said.

The policy paper offers seven clear recommendations to tackle global tax issues and states that governments should address national tax rules which distort behaviour and reward one financing route over another. “Care should be taken to avoid sudden changes, as this could require significant wholesale restructuring that could have unintended consequences,” the report notes.

The industry body states that while tax havens should provide information to governments about nationals who use those jurisdictions, the large nations should not focus attention on tax havens as a distraction from the need to sort out their own finances. ACCA also points to the need for the EU and other leading nations to remove the remaining barriers to free trade, and continue to refrain from pressuring ‘flat-tax’ countries to raise their tax rates in the name of ‘harmonisation’.

Governments should address substantive issues of tax law that cause distortions, rather than relying on headline corporate tax rates and ‘holidays’ to attract FDI, the body advises. “By keeping the system as simple and homogeneous as possible, the certainty which business needs will be provided,” the report said.

“We believe the recommendations made in this report would go a long way to addressing some of the challenging current issues in the field of international tax,” added Chowdhury. “Tax policy is and must remain in the hands of sovereign national governments, which should be able to run regimes suited to their stages of economic development, such as the flat-tax systems in post-communist countries in Eastern Europe.”