22 Jul, 2013

The Taxman Cometh: Tourism Multinationals to Face Global Heat Over Tax Evasion, Avoidance

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Paris, OECD Media Release, 19/07/2013 – National tax laws have not kept pace with the globalisation of corporations and the digital economy, leaving gaps that can be exploited by multi-national corporations to artificially reduce their taxes.

OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) offers a global roadmap that will allow governments to collect the tax revenue they need to serve their citizens. It also gives businesses the certainty they need to invest and grow.

Produced at the request of the G20 and introduced at the G20 Finance Ministers’ meeting in Moscow, the Action Plan identifies 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes.

“This Action Plan, which we will roll out over the coming two years, marks a turning point in the history of international tax co-operation. It will allow countries to draw up the co-ordinated, comprehensive and transparent standards they need to prevent BEPS,” said OECD Secretary-General Angel Gurría. “International tax rules, many of them dating from the 1920s, ensure that businesses don’t pay taxes in two countries – double taxation. This is laudable, but unfortunately these rules are now being abused to permit double non-taxation. The Action Plan aims to remedy this, so multinationals also pay their fair share of taxes.”

Commenting on the Action Plan, Russian Finance Minister Anton Siluanov said, “As the presidency of the G20, we commend the work of the OECD to ensure that the international tax system promotes growth and competition without distorting the basic tenets of fairness – that it allows multi-national corporations to prosper without loading a higher tax burden on domestic companies and individual tax payers.”

The Action Plan recognises the importance of addressing the digital economy, which offers a borderless world of products and services that too often do not fall within the tax regime of any specific country, leaving loopholes that allow profits to go untaxed.

The Action Plan will develop a new set of standards to prevent double non-taxation. Closer international co-operation will close gaps that, on paper, allow income to ‘disappear’ for tax purposes by using multiple deductions for the same expense and “treaty-shopping”. Stronger rules on controlled foreign companies would allow countries to tax profits stashed in offshore subsidiaries.

Domestic and international tax rules should relate to both income and the economic activity that generates it. Existing tax treaty and transfer pricing rules can, in some cases, facilitate the separation of taxable profits from the value-creating activities that generate them. The Action Plan will restore the intended effects of these standards by aligning tax with substance – ensuring that taxable profits cannot be artificially shifted, through the transfer of intangibles (eg patents or copyrights), risks or capital, away from countries where the value is created.

Greater transparency and improved data are needed to evaluate, and stop, the growing disconnect between the location where financial assets are created and investments take place and where MNEs report profits for tax purposes. Requiring taxpayers to report their aggressive tax planning arrangements and rules about transfer pricing documentation, breaking-down the information on a country-by-country basis, will help governments identify risk areas and focus their audit strategies. And making dispute resolution mechanisms more effective will provide businesses with greater certainty and predictability.

The actions outlined in the plan will be delivered in the coming 18 to 24 months by the joint OECD/G20 BEPS Project, which involves all OECD members and G20 countries on an equal footing. To ensure that the actions can be implemented quickly, a multilateral instrument will also be developed for interested countries to amend their existing network of bilateral treaties.

Further OECD work on Base Erosion and Profit Shifting is available: http://www.oecd.org/tax/beps.htm

See also BEPs Frequently Asked Questions.

European Commission welcomes G20 Finance Ministers’ commitments on new measures to fight tax evasion and avoidance

The following statement was issued by Algirdas Šemeta, EU Commissioner for Taxation, Customs, Statistics, Audit and Anti-Fraud,  Brussels, 20 July 2013

I warmly welcome the G20 Finance Ministers’ commitments today on concrete measures to better tackle tax evasion and corporate tax avoidance worldwide.

This confirms a paradigm shift in international taxation – one that will make it fairer, more effective and better equipped for the 21st century economy.

The OECD’s Action Plan to tackle Base Erosion and Profit Shifting is the right approach to curbing corporate tax avoidance worldwide.

The BEPS Action Plan complements the measures put forward by the Commission to tackle aggressive tax planning in the EU, which European leaders endorsed in May.

It fully supports our common objectives to ensure that everyone pays their fair share of tax – whether large multinational or small corner shop – and that taxation reflects where economic activity takes place. It also fills important gaps that can only be effectively dealt with at international level.

I particularly welcome the commitment to examine ways to overcome the tax challenges of the digital economy. This is an issue of high importance for the Commission and the Member States, and it will be among the issues to be looked at during the October European Council dedicated to the Digital Agenda. We will be working closely both within the EU and with the OECD to find answers to the complex questions that taxing the digital economy poses.

The endorsement of automatic exchange of information as the global standard is extremely welcome.

Without a doubt, automatic information exchange is the best way of ensuring that every country can collect the taxes that it is legitimately due.

For some time now, the EU has been the fore-runner in this field. The international consensus to follow our lead, with more openness and greater transparency, gives credence to our approach.

It also creates the perfect environment for us to press ahead with expanding the scope of automatic information exchange within the EU, and seeking the same from our closest neighbours.

What is important now is that these commitments are followed through with swift action. We must strike while the iron is hot, and keep to the ambitious timeline set out by the OECD.

This is vital for ensuring fair taxation. Our honest citizens and businesses mustn’t shoulder an added burden because of the misdeeds of tax evaders. This holds true both within the EU and worldwide.