OECD outlines anti-tax avoidance plan
First published in Accountancy Age, 17 September 2014
The clampdown on tax avoidance by multinational corporations has been bolstered by a series of recommendations made by the OECD.
Companies including Google, Amazon and Starbucks have been in the firing line for their use of offshore jurisdictions to drive down their UK tax liabilities.
In particular, the companies have been using transfer pricing, which some claim has the effect of mitigating their liabilities. The method sees multinational corporations value and purchase goods and services moving across international borders from one of the group's corporate entities to another. An ‘arm's length' principle is usually applied to ensure the transaction is made at market value, but there have been questions raised over whether all companies do so in practice.
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Multinationals should be concerned the OECD action plan legitimises the aggressiveness we have already seen from tax authorities towards taxpayers, particularly in areas such as transfer pricing. However, obtaining broad international agreement will not happen easily, as many countries fight to maintain their competitive advantage which attracts both employment and investment.