New global rules to force tax avoiders to “pay their fair share” will be introduced under a 15-point action plan launched by the Organisation for Economic Co-operation and Development (OECD) think tank today.
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 mounting controversy over the way multinational corporations have shifted profits to low tax jurisdications, often offshore.
The minimal corporation tax paid by US multinationals including Google, Starbucks and Amazon, has ignited a firestorm of controversy in the UK. Their representatives were savaged before the House of Commons Public Accounts Committee.
But even in the US the issue has become a political hot potato. Republican Senator John McCain was sharply critical of Apple during a congressional hearing, saying domestic competitors were disadvantaged by its actions. Apple, however, insisted it paid every dollar it owed.
The OECD said its plan would stop companies “abusing” outdated international tax rules to prevent multinational companies from paying tax in more than one country.
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 multi-nationals 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 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 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”.
Tax critics welcomed the plan. TUC general secretary Frances O’Grady said: “It’s good news that the OECD has recognised the need for bold action to stop the likes of Amazon, Google and Starbucks shifting money around the world to reduce their tax bills. A new global law against ‘double non-taxation’ is vitally important and we want the British government to signal immediately that it will comply.
However, she added: “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.”