Last year G20 group of leading developed and emerging economies tasked the Organisation for Economic Co-operation and Development - - the Paris-based think-tank for 34 mainly developed countries - - to produce proposals for reform of global corporate tax rules and today the OECD released its first recommendations for a co-ordinated international approach to combat tax avoidance by multinational enterprises, under the OECD/G20 Base Erosion and Profit Shifting Project designed to create a single set of international tax rules to end the erosion of tax bases and the artificial shifting of profits to jurisdictions to avoid paying tax. It's the biggest reform program of global business tax rules since their development in the 1920s.
The task of Pascal Saint-Amans, director of the Centre for Tax Policy and Administration and his team was to modernise a system that in recent decades has been massively abused to shift profits to pay little or no tax. With the development of the Internet, multinational companies got new opportunities to avoid tax.
The proposals have been agreed by the Committee on Fiscal Affairs (CFA), which includes representatives from the 34 OECD countries two candidate nations, and eight large emerging economies, including China, India, Brazil, Russia, Indonesia and South Africa. The CFA plans to produce a second, and final set of proposals next year.
However, 4 of the 44 countries believed to be UK, Luxembourg, the Netherlands and Spain, according to the Financial Times could not agree on the design of a measure aimed at curbing unfair competition for patent income, which is widely viewed as contributing to the problem of tax avoidance.
The bid to crack down on patent boxes follows fears they would lead to a “race to the bottom” and poach revenue from other countries. Germany last year described them as being at odds with the “European spirit”.
Presenting the OECD’s recommendations, Angel Gurría, secretary-general, said: “The G20 has identified base erosion and profit shifting as a serious risk to tax revenues, sovereignty and fair tax systems worldwide. Our recommendations constitute the building blocks for an internationally agreed and co-ordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favourable tax treatment.”
At the request of the G20 leaders, the OECD’s work is based on a BEPS Action Plan setting out the 15 key elements to be addressed by 2015. The project aims to help governments protect their tax bases and offer increased certainty and predictability to taxpayers, while guarding against new domestic rules that result in double taxation, unwarranted compliance burdens or restrictions to legitimate cross-border activity.
In order to implement BEPS measures in a fast and effective manner, the BEPS Action Plan provides for the development of a multilateral instrument. After consultation with public international law and international taxation experts, the CFA has concluded that a multilateral legally binding instrument to achieve this is feasible and could be developed soon to at least incorporate tax treaty related BEPS measures.
The first 7 elements of the Action Plan released today focus on helping countries to:
OECD BEPS Project: Ireland should embrace corporate tax reform - - includes analysis of underperforming indigenous tradable sector.
Fighting tax avoidance by multinationals
Globalisation has offered multinational enterprises ever-increasing opportunities to reduce their taxes, often by moving profits to offshore financial centres. The OECD/G20 Base Erosion and Profit Shifting Project aims to provide governments the building blocks for a clear international solution to corporate tax planning strategies that exploit loopholes in the current legal framework.
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