Corporate tax avoiders face global crackdown

New global rules to force tax avoiders to “pay their fair share” will be introduced under a 15-point action plan launched by the OECD yesterday.

The OECD claimed the plan – to be rolled out over two years – marked “a turning point in the history of international tax co-operation”. It comes amid concerns over the way multinational corporations have shifted profits to low tax jurisdictions, often offshore.

Representatives of US multinationals such as Google, Starbucks and Amazon were recently savaged before the House of Commons Public Accounts Committee over the minimal corporation tax they pay.

In the US the Republican Senator John McCain was sharply critical of Apple during a congressional hearing, saying that domestic competitors were disadvantaged by its actions. Apple insisted it paid every dollar it owed.

Unveiling the plan at a meeting of G20 finance ministers in Moscow, the OECD said it would stop companies “abusing” outdated international tax rules. A new set of global standards will be developed with this aim.

The OECD said its plan would align tax with substance, forcing companies to pay tax where sales and profits are made.

It further wants to make multinationals report “their aggressive tax planning arrangements” so it can break down the information on a country-by-country basis. “This 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 OECD said.

“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,” said the OECD’s 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 OECD pledged that its plan would address 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 TUC general secretary, Frances O’Grady, said: “While we welcome the steps taken by the OECD today, it should monitor the impact so that if these proposals don’t solve the problem, it can move immediately to tougher action that will.”

Tax techniques

Double Irish with a Dutch sandwich

A term for the practice of using Irish and Dutch subsidiaries. You send profits to your Irish company, then your Dutch one, then to a second Irish company headquarted in a tax haven.

Transfer pricing

A subsidiary in a tax haven provides a service to an onshore subsidiary, charging a very high price. This effectively reduces profits in the onshore territory to the offshore. A variant uses intra-company loans: your offshore subsidiary lends your onshore operation money at a ruinously high interest rate.