OECD prepares new rules to limit corporate tax avoidance

All 34 members back proposals to crack down on schemes that enable multinationals to pay as little as 1% tax on profits, it says

The OECD is to draw up new rules to limit tax avoidance by some of the world’s largest businesses in time for a meeting of the G20 group of nations in July.

The Paris-based thinktank said all its 34 members backed proposals to crack down on schemes that allow multinational firms to pay as little as 1% tax on their profits.

At the OECD’s annual conference, secretary general Ángel Gurría said there was widespread commitment to design a system that allowed countries to collect the taxes set by their governments.

The agreement comes after increasing controversy over the tactics used by firms such as Amazon, Apple and Facebook to avoid taxes in Europe, where they make billions of pounds’ worth of sales. Apple boss Tim Cook was confronted by US senators in a congressional hearing last week over the company’s use of Ireland as the centre of its tax arrangements. Almost two-thirds of Apple’s $34bn (£22.5bn) profits for 2011 were earned by companies registered in Cork.

The OECD is expected to present the G20 meeting of finance ministers in July with an outline plan for assessing the level of tax companies should pay before giving a more comprehensive blueprint next year.

Gurría said: “This is a very challenging piece of work. We have created a regime where it is legal to pay no or little taxes. But I’m very confident we can find a formula that provides a level playing field.”

In a communique agreed by OECD members, the thinktank said profit-shifting by large companies was “a serious risk to tax revenues, tax sovereignty and the trust in the integrity of tax systems of all countries that may have a negative impact on investment, services and competition, and thus on growth and employment globally”.

Sigbjørn Johnsen, Norway’s finance minister, said: “It used to be that we had treaties to stop double taxation, but now we have seen these treaties allow double no-taxation. It is an issue we are committed to addressing. This is a moving train: it is on the rails and it cannot be stopped.

“The OECD has proved its competence in this area. Tax agreements concerning tax havens were absent only a few years ago, but new countries are signing up all the time to transparency agreements. There is no reason why we cannot achieve the same in respect of tax-base erosion and profit-shifting.”

Tax avoidance is also expected to be a key debate at the G8 group of nations summit to be held in Northern Ireland in June, after David Cameron said tactics used by large multinationals to dodge taxes were a serious threat to the exchequer.

Pascal Saint-Amans, head of tax policy at the OECD, said his organisation would tackle the way companies charged subsidiaries royalty payments to avoid taxes in the UK and other jurisdictions. He added that there should also be new rules governing how much debt is loaded on subsidiaries with the specific aim of avoiding taxes.

“We have to ask: is the royalty too high and is it going to the wrong place?” Saint-Amans said. “A royalty should be charged from the place where it was developed.”

If Google was forced to charge royalties from its California base rather than its offices in Ireland, it would be forced to pay the US government’s 35% tax rate.

He said he was optimistic that G20 finance ministers could reach a consensus based on plans put forward by the OECD.

“It is a very ambitious project. We have put ourselves under terrible pressure, but I believe it is achievable,” he said.

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