LONDON: New international tax rules proposed yesterday could eliminate structures that have allowed companies such as Google Inc and Amazon.com Inc to shave billions of dollars off their tax bills.
The Organisation for Economic Cooperation and Development (OECD) announced a series of measures that, if implemented by members, could stop companies from employing many commonly-used practices to shift profits into tax havens.
Corporate tax avoidance has become a hot political topic following media coverage and parliamentary investigations into the arrangements many big companies use to cut tax bills.
Amazon and Google say they pay all the taxes they should. Analysts say competitive pressures force companies to seek to minimise all costs, including tax.
Last year, the Group of 20 leading economies asked the OECD to develop an action plan to tackle the problem. Big US technology companies could be those most affected by the OECD’s plans but others could also be hit, including pharmaceuticals and branded consumer goods firms, as well as many European companies.
Chris Morgan, Head of Tax Policy at accountants KPMG in London, said the proposals were “balanced” and while some firms would pay more tax, big business accepted the need for change.
Anti-poverty charity ActionAid criticised the plans saying some of the measures envisaged would be too expensive for developing countries to implement.
The draft proposals announced have been agreed by all G20 members and OECD members, which include most major industrialised countries, the OECD said in a statement. But the measures form part of a larger “(tax) base erosion and profit shifting” programme that will conclude next year. Only then will countries look at enshrining the results of the programme in law.
For more than 50 years, the OECD’s work on international taxation has been focused on ensuring companies are not taxed twice on the same profits. The fear was that this would hamper trade and limit global growth.
Over the years, the OECD has formulated a standardised model tax treaty which allows countries to split taxation rights and avoid double taxation, partly by providing reliefs from measures intended to stop tax avoidance, such as withholding taxes.
But companies have been using such treaties to ensure profits are not taxed anywhere.
For example, search giant Google takes advantage of tax treaties to channel more than $8 billion in untaxed profits out of Europe and Asia each year and into a subsidiary that is tax resident in Bermuda, which has no income tax. Google Executive Chairman Eric Schmidt has said changes to rules that increase its tax bill would hit innovation.
The OECD’s proposals would make amendments to its model treaty so that cross-border transactions would not benefit from the reliefs in tax treaties, if a principal reason for engaging in the transactions was to avoid tax.
Reuters
