Plans unveiled to crack down on corporate tax avoidance

October 6, 2015

Sweeping plans for a global crackdown on corporate tax avoidance were unveiled on Monday, after more than 60 governments agreed the first big overhaul of the rules for taxing profits for nearly a century.

The proposals to improve transparency, close loopholes and restrict the use of tax havens are the culmination of an ambitious international project launched two years ago by G20 governments in response to surging public anger over corporate tax avoidance.

Angel Gurría, secretary-general of the Organisation for Economic Co-operation and Development, which has overseen the so-called “base erosion and profits-shifting” (Beps) project, said the degree of consensus achieved was “quite remarkable”.

“It is like building a cathedral, except instead of taking three centuries, it took two years, ” Mr Gurría said.

Richard Collier, a partner at PwC, the professional services group, praised the OECD for achieving a larger degree of consensus than expected.

The package of measures — which will be presented to finance ministers in Lima, Peru this week — contains the OECD’s first estimate for the potential lost revenues from companies employing Beps.

Its calculations, which it said were conservative, indicated that tax revenues lost from Beps were 4-10 per cent of global corporate tax revenues, equivalent to $100bn-$240bn a year. The impact was particularly damaging for developing countries, it added.

Pascal Saint-Amans, the OECD’s top tax official, described the package of measures as “a sea-change which is already having a significant behavioural impact on taxpayers”. About two-thirds of businesses indicated plans to review their structures ahead of the Beps regulations, according to a recent survey across 35 countries by Thomson Reuters, the data provider.

The Business and Industry Advisory Committee, which represents business at the OECD, agreed “the Beps project needed to happen”, but said further work was required on changes to the “permanent establishment” rules, which determine whether a company has a taxable presence in a country.

In addition, it said more attention should be given to aspects of the “transfer pricing” rules — the pricing of transactions between different arms of a multinationals. It also raised feared that some of the proposals would lead to double taxation that would harm cross-border economic growth.

The Beps Monitoring Group, a network of tax justice campaigners, criticised the package for mainly “patching up the existing system” and called for a fundamental rethink so that multinationals were taxed as though they were a single entity rather than a loose collection of independent companies.

“Much remains to be done to construct an international tax system fit for the twenty-first century,” the monitoring group added.

Some of the new rules, such as changes to transfer pricing guidelines, will be adopted immediately by some governments. But others, such as provisions to prevent “treaty shopping”, the improper use of treaties to avoid tax, will require changes to thousands of tax treaties.

About 90 countries are involved in developing a multilateral instrument to speed up the process of amending the treaties.

All the OECD and G20 countries have agreed to adopt the new rules on preventing treaty shopping, fighting harmful tax practices, improving dispute resolution and implementing country-by-country reporting, which will give tax authorities information on where companies make their profits and pay their taxes.

For some of the other measures, such as restricting the generosity of tax relief for interest deductions, countries have agreed a “general tax policy direction”.




Hayley Pride
PR Coordinator
Tax & Accounting, APAC & EMEA
Thomson Reuters
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