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| OECD hopes tax reforms will end era of aggressive avoidance | OECD hopes tax reforms will end era of aggressive avoidance |
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| An unprecedented international collaboration on tax reform, led by the G20 nations and targeting many of the world’s largest global corporations, will wipe out much of the tax avoidance industry, according to top OECD officials. | |
| Related: OECD tax reforms: five key points | |
| The two-year reform programme, under the auspices of the Organisation for Economic Co-operation and Development, was prompted by a spate of revelations in recent years about the tax affairs of multinationals including Starbucks, Google and Amazon. | |
| Alongside the final batch of reforms, published on Monday, the OECD released what it called “extremely conservative” estimates suggesting large global businesses were shifting profits and eroding the tax receipts of economies around the world at a cost of $100bn (£65bn) to $240bn a year — equivalent to between 4% and 10% of global corporation tax revenues. | Alongside the final batch of reforms, published on Monday, the OECD released what it called “extremely conservative” estimates suggesting large global businesses were shifting profits and eroding the tax receipts of economies around the world at a cost of $100bn (£65bn) to $240bn a year — equivalent to between 4% and 10% of global corporation tax revenues. |
| In the face of increasingly aggressive corporate tax avoidance, countries have been forced to rely more heavily on other taxing options where there is less scope for shifting income abroad — including taxes on workers’ pay and and sales taxes such as VAT. | |
| “[The reforms will help] move away from an era when tax planning had become part of core business models,” said Pascal Saint-Amans, the OECD’s tax director who has led the two-year reform programme, backed by 60 countries representing more than 90% of the world’s economy. “Value creation [should be] the core business of industry. Tax planning should just be some supportive, marginal activity … The tax world will not be the same.” | |
| The rule changes are mainly designed to be incorporated into thousands of bilateral tax treaties that form the arteries of global trade. Most of the treaties are based on a standard OECD template which has hardly been updated in almost a century. | The rule changes are mainly designed to be incorporated into thousands of bilateral tax treaties that form the arteries of global trade. Most of the treaties are based on a standard OECD template which has hardly been updated in almost a century. |
| Related: Revealed: how AstraZeneca avoids paying UK corporation tax | |
| In the last 30 years, however, tax accountants have become adept at finding mismatches between tax rules in different countries, helping multinationals relocate valuable assets internationally to minimise their tax. The digital economy — in which companies can do business in countries while having little or no physical presence there — has added further opportunities. | |
| Saint-Amans said companies including Amazon and Starbucks were already changing their behaviour in anticipation of the tax reforms. | Saint-Amans said companies including Amazon and Starbucks were already changing their behaviour in anticipation of the tax reforms. |
| However, share prices around the world have shown little discernible reaction to details of the OECD reforms as they have emerged over the last two years. Investors appear to harbour doubts that the new rules represent a grave threat to the profitability of some of the largest stock market listed companies. | However, share prices around the world have shown little discernible reaction to details of the OECD reforms as they have emerged over the last two years. Investors appear to harbour doubts that the new rules represent a grave threat to the profitability of some of the largest stock market listed companies. |
| The reform programme has attracted criticism from some politicians, especially in the US, prompting fears some aspects may not come to fruition. Key Republican-dominated senate committee leaders have made clear their staunch opposition to the reforms. | |
| “[The OECD reform programme] is attempting to basically grab a tax base of our [US] domestic corporations,” Paul Ryan, chair of the US tax-setting ways and means committee, said this summer. “So we want to make sure that our Treasury has a united front against that direction.” | |
| In a carefully stage-managed dinner of G20 finance ministers in Lima, Peru, on Thursday the OECD’s final report is expected to receive a warm welcome, but there have already been many compromises. Several hoped-for rules have been downgraded to recommendations of best practice — with no pressure on nations to comply. | |
| Related: Tax avoidance by corporations is out of control. The United Nations must step in | Related: Tax avoidance by corporations is out of control. The United Nations must step in |
| These include rules designed to regulate the tax deductions groups can secure if they use internal interest payments to shift around profits as part of their tax planning. Here it will be up to countries such as Luxembourg whether or not to apply the OECD’s recommendations. | |
| Proposals on how to tax multinationals diverting profits overseas, to what tax experts call “controlled foreign companies” (CFC), will also be optional. The UK, which has very generous CFC tax rules, is understood to have lobbied hard against a prescriptive standard in this area. | |
| Campaign group Tax Justice Network said: “This has been the first serious global effort to combat widespread corporate tax cheating – and that in itself has been a huge step forward.” However, it added, big business and tax lobbyists had put a check on the achievements. | Campaign group Tax Justice Network said: “This has been the first serious global effort to combat widespread corporate tax cheating – and that in itself has been a huge step forward.” However, it added, big business and tax lobbyists had put a check on the achievements. |
| “Many of the proposals are weak, and will still provide multinational companies with opportunities to move profits away from the countries where those profits are generated, and in doing so reduce tax revenues,” the network said. | “Many of the proposals are weak, and will still provide multinational companies with opportunities to move profits away from the countries where those profits are generated, and in doing so reduce tax revenues,” the network said. |
| Christian Aid said some nations that host many of the world’s largest businesses, including the UK and America, had “fought hard at recent international talks to ensure that the power to set international tax rules stayed with rich countries.” | Christian Aid said some nations that host many of the world’s largest businesses, including the UK and America, had “fought hard at recent international talks to ensure that the power to set international tax rules stayed with rich countries.” |
| Tove Maria Ryding, tax justice co-ordinator at the European Network on Debt and Development (Eurodad), said tax reforms were too complex and likely to fail. “[They] will create an even bigger Eldorado for tax lawyers and multinational corporations who want to circumvent the tax rules.” | |
| One of the biggest changes for multinationals will see them required to privately disclose to all tax offices an overview of country-by-country performance, including revenue, profits and employee numbers. “I think it’s already having a significant influence on businesses, which are already revising their tax planning,” said Saint-Amans. | One of the biggest changes for multinationals will see them required to privately disclose to all tax offices an overview of country-by-country performance, including revenue, profits and employee numbers. “I think it’s already having a significant influence on businesses, which are already revising their tax planning,” said Saint-Amans. |
| Mike Devereux, a professor of business taxation at the Oxford University centre for business taxation, predicted the OECD’s efforts would fail to hold back the tide of tax competition between countries and they strained to out-do one another in the race to attract inward investment. | |
| “The [continuing international tax] system invites governments to destabilise it by competing with each other for economic activity, tax revenue and possibly to try to advantage their own domestic companies,” he said. “For at least 30 years this has led to gradual reductions in effective rates of taxation of profit ... [This flaw] will continue to afflict the international tax system.” |