Tom Bergin London
PLANS for a major rewriting of international tax rules unveiled on Tuesday could eliminate structures that have allowed companies like Google and Amazon to shave billions of dollars off their tax bills.
The Organisation for Economic Co-operation and Development (OECD) announced measures that, if implemented by member states, could stop companies from employing many common practices used to shift profits into tax havens.
Corporate tax avoidance has become a hot political topic following media coverage and parliamentary investigations into the arrangements many big companies use to cut their tax bills.
Amazon and Google say they pay all the taxes they should. Analysts say competitive pressures force companies to seek to minimise all costs, including tax.
Last year, the Group of 20 (G20) leading economies asked the OECD to develop an action plan to tackle the problem.
Big US technology companies could be those most affected but others could also feel the impact, including pharmaceutical and consumer goods makers, as well as many European companies.
The draft proposals had been agreed by all G20 members and OECD countries, which include most major industrialised economies, the OECD said in a statement.
But the measures formed part of a larger “[tax] base erosion and profit shifting” programme that would conclude next year. Only then would countries look at enshrining the changes in law, it said.
For more than 50 years, the OECD’s work on international taxation has been focused on ensuring companies are not taxed twice on the same profits. The fear was that this would hamper trade and limit global growth.
It has formulated a standardised model tax treaty that allows countries to split taxation rights and avoid double taxation, partly by providing relief from measures intended to stop tax avoidance, like withholding taxes.
But companies have been using such treaties to ensure profits are not taxed anywhere.
For example, search giant Google takes advantage of tax treaties to channel more than $8 billion (R88bn) in untaxed profits out of Europe and Asia each year and into a subsidiary that is tax resident on the island of Bermuda, which has no income tax.
Google executive chairman Eric Schmidt has said changes to tax rules that increased its tax bill would hit innovation.
The OECD’s proposals would make amendments to its model treaty so that cross-border transactions would not benefit from the reliefs in tax treaties if a principal reason for engaging in the transactions was to avoid tax.
“We are putting an end to double non-taxation,” OECD head of tax Pascal Saint-Amans told journalists.
The think tank also wants curbs on how much profit companies can report in centralised inter-company lending and purchasing arms, which are often based in tax havens.
Where such subsidiaries generated large profits on the back of intra-company trade, it said, the profits should be shared across the group.
The OECD has also proposed changes in the rules on tax residence that allow US tech giants to generate billions of dollars in sales in many countries but not have those revenues assessed for tax by those countries’ authorities.
A long-standing rule that allowed a company to operate a warehouse in a country without creating a tax residence there should be reconsidered, the OECD said.
It also proposed that having a “significant digital presence” in a country would create a tax residence. – Reuters