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OECD Proposes Curbs to Corporate Tax Avoidance

OECD Proposes Curbs to Corporate Tax AvoidanceOECD Proposes Curbs to Corporate Tax Avoidance

The Organization for Economic Cooperation and Development has proposed draft laws to stop companies from avoiding billions of dollars in taxes. All OECD members and G20 members have already expressed their support, DW reported.

International efforts to curb corporate tax avoidance got a boost Tuesday as the OECD proposed changes to global tax laws that would block companies from shifting profits into tax havens.

The draft proposals have been agreed upon by all members of the OECD and G20, so most industrialized countries are on board, but they have yet to be ratified into law.

The OECD said the measures would mostly affect leading technology companies such as Amazon and Google, which have been scrutinized for taking advantage of tax treaties that allow them to protect some profits from being taxed at all.

Both companies maintain that they abide by tax law and pay all the taxes they owe.

 Loopholes

Corporate tax avoidance has received increased attention since the financial crisis and governments across the world have sought to close legal tax loopholes for businesses.

Large multinational companies – whether it’s Apple, Starbucks or Volkswagen – shift their profits wherever they see a tax benefit and cover up the tracks. Such maneuvering is legal for lack of rules and regulations on tax avoidance. But that could change.

Under the plan, multinationals must disclose all their various costs in all OECD countries, including license expenses, earned interest, administration fees and wages. “This is a strict set a rules, much stricter than anything we’ve seen previously,” said tax expert Michael Bormann with Venturis Management Consultants. The rules, he added, would substantially hinder companies from shifting profits generated in countries with higher taxes to those with lower taxes.

 Tax Regulations

Traditionally, the OECD’s work on international tax regulations has focused on ensuring that companies are not taxed twice. Now it’s focus has shifted.

“We are putting an end to double non-taxation,” said the OECD’s head of tax, Pascal Saint-Amans.

There is, however, criticism from some quarters. Anti-poverty charity ActionAid, for instance, criticized the plans saying some of the measures agreed upon would be too costly for developing countries to implement.

Markus Meinzer from the German interest group, Tax Justice Network, had said in July that the impact of such a program depends on whether the data will be available to everyone, or only to tax authorities.

The OECD will only be successful in its battle against tax evasion if supervisory bodies are established to govern the companies. If only voluntary measures are introduced, billions of dollars in tax revenue will continue to slip through governments’ fingers, he believes.

 

Financialtribune.com