OECD recommends approach to combating corporate tax avoidance
First published in Accounting Today, 16 September 2014
The OECD and the Group of 20 finance ministers hope 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.
“The G20 has identified base erosion and profit shifting as a serious risk to tax revenues, sovereignty and fair tax systems worldwide,” said OECD Secretary-General Angel Gurría in presenting the recommendations. “Our recommendations constitute the building blocks for an internationally agreed and coordinated 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.
Frederic Donnedieu, chairman of Taxand, sees major changes in how international taxes will be handled. "The OECD’s BEPS Action Plan is designed to redefine and revolutionise the taxation of companies across the globe," he said. "It is the most coordinated attempt to reach common objectives—in both developed and developing economies—that we have seen in some time. But it’s clear from today’s press conference that whilst the OECD’s plans are undoubtedly a further step to tilt the balance of power further towards tax authorities, how they will be implemented and the form they will take is very much unknown.
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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. Time will tell whether all of the OECD’s BEPS initiatives will be implemented and indeed how they will be enforced, but there is still cause for concern. At the heart of the BEPS proposals is a reorganisation of the way in which profits are taxed, particularly in light of the new and ‘borderless’ digital economy. The global initiative, coming to the first stage of its deliverables today, will require close international cooperation, transparency, data and reporting requirements from all countries and multinationals.