Multinationals face OECD pressure over their tax evasion and avoidance

Multinationals that use countries’ tax regimes to avoid or minimise the amount of tax they pay face renewed pressure after the OECD presented its report on the steps needed to clamp down on tax evasion and avoidance.

The issue has shot to the top of the political agenda after Britain raised the matter, which was centre stage in the US last month over the use of countries, such as Ireland, by multinationals, such as Apple and Google, to slash their tax bills.

While the EU and the US are moving ahead with a raft of measures to prevent wealthy individuals using trusts and tax havens to evade tax and against companies taking advantage of loopholes in national tax regimes, many countries are insisting that the measures must be global.

The OECD has presented the G8 leaders meeting in Fermanagh with the basic first steps needed to create what they say will be a fairer and more transparent global tax system.

The four steps and a timeframe for implementing them should lead to the automatic exchange of information for tax purposes as the expected new standard, a statement from the OECD said.

“Because tax evasion is a global issue, the model needs to have worldwide reach to avoid merely relocating the problem elsewhere.

“The process also needs to be standardised to minimise costs for businesses and governments and to improve effectiveness,” it said.

The four steps are: Enacting broad framework legislation to facilitate the expansion of a country’s network of partner jurisdictions; selecting the legal basis for the exchange of information; adapting the scope of reporting and due diligence requirements and coordinating guidance; and developing common or compatible IT standards.

OECD secretary general Angel Gurría said he expected today’s meeting to provide additional impetus to their work on base erosion and profit shifting by multinational corporations. “We will need to close the tax avoidance loopholes used by multinational corporations, create a level playing field and help governments to raise the revenues they need to provide their citizens with the services they deserve”.

The OECD will present guidelines for assessing how much tax multi-national companies should pay to the G20 finance ministers meeting in July in Moscow, and present a plan on how to achieve this next year.

Pascal Saint-Amans, the OECD tax division chief, said they would plan to overhaul the multilateral tax treaties within two years after OECD members last month requested the body come up with recommendations.

One of the areas to be covered will be transfer taxing, where companies set up subsidiaries in other countries that take on debt such as paying royalties and avoid paying tax as a result. This is an area where Ireland has been accused of facilitating companies like Google and Apple.

The OECD, which represents 34 mostly developed countries, already has a Convention on Mutual Administrative Assistance in Tax Matters to help co-ordinate the work of tax authorities dealing with cross-border tax evasion and it said that an increasing number of countries are joining it — the latest being Luxembourg.