OECD Plan Bolsters Clampdown on International Tax Avoidance

The Organisation for Economic Co-operation and Development (OECD) promotes policies to improve the economic and social well-being of people around the world. The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems and they have recently made recommendations that will help tax authorities to clampdown on international tax avoidance by multi-national companies.

 

International companies such as Starbucks, Google and Amazon have been criticised in the press for using transfer pricing where they value and purchase services or products in various different countries to help minimise their tax liabilities.

 

The OECD recommendations cover 7 separate areas, including transfer pricing and tax treaty abuse, and are a major move towards international co-operation to deal with these types of tax abuses. They are a response to the increasing use of corporate tax planning strategies and aggressive tax avoidance schemes that exploit tax loopholes and allow corporations to report profits in countries with much more favourable tax regimes.

tax avoidance

 

New Reporting to Prevent Tax Avoidance

The UK is the first of 44 countries to formally commit to implementing the new reporting systems, and multi-nationals based in the UK will now have to formally report in which countries they make their profits and in which countries they pay tax.

The new reporting method will help the tax authorities obtain information about the multinational corporations’ worldwide activities so they can determine where to focus their efforts to prevent tax avoidance schemes being used. The method uses a standard template to ensure consistency of reporting but also reduce the administration burden for businesses.

 

Although the OECD recommendations have been broadly welcomed it may be more difficult in practise to obtain full international agreement because many countries actively want to attract businesses by having low corporation taxes.

 

 

 

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