OECD Tax Proposals Tighten Screws on Multinationals

The Organisation for Economic Cooperation and Development (OECD) has published a package of draft rules and progress reports in the latest stage of the campaign to update international tax rules and force multinational corporations (MNCs) to contribute more towards government budgets.

The reform process was initiated by finance leaders from the G20 economies when they met at a Moscow summit in February 2013 and pledged to combat corporate tax avoidance. The OECD’s publication is issued ahead of this weekend’s meeting G20 finance ministers and central bank governors in Cairns, Australia, who are expected to agree updates to the rules.

However, the initiative involves a total of 44 countries, made up of G20 countries, OECD members and others and collectively representing 90% of the global economy. If the reforms are pushed through the impact on both corporate profits and treasury receipts could be significant in many economies, both large and small.

The OECD said that the G20 reform programme is urgently required “to prevent existing consensus-based international tax framework from unraveling”. Among the initiatives the OECD believes will have the greatest impact are new rules to combat arbitrage structures that exploit differences between tax regimes to conjure up unwarranted tax deductions. These have been routinely deployed by the world’s largest international businesses.

The OECD’s latest publication includes draft rules requiring MNCs to give tax authorities a country-by-country detailed breakdown of their activities and earnings, making it easier for nations to detect patterns of tax avoidance.

Tax advisory firm Taxand commented that the OECD’s proposals were “undoubtedly a further step to tilt the balance of power further towards tax authorities”, but how they would be implemented and the form they would take remained unclear.

“Multinationals should be concerned that in many ways, the OECD action plan legitimises the aggressiveness we have already seen from tax authorities towards taxpayers, particularly in areas such as transfer pricing,” said Taxand chairman Frederic Donnedieu. “Time will tell whether all of the OECD’s base erosion and profit shifting (BEPS) initiatives will be implemented and indeed how they will be enforced, but there is still cause for concern.”

He added that the OECD’s was progressing at ‘glacial’ speed. “Obtaining broad international agreement will not happen easily, as many countries fight to maintain their competitive advantage which attracts both employment and investment.

“We are seeing a number of countries stalling on any legislative changes whilst they wait for BEPS to fine tune the guidance, particularly around the digital economy, whilst others are legislating changes in advance of international agreement, causing greater confusion for multinationals as they try to adhere to varying tax rules across their countries of operation.”

7 views

Related reading

hanjin-shipping
donald-trump
job
New consumer banking head for Citi Asia Pacific