Government key to OECD’s tax report

The Government has played an active role in developing the OECD’s base erosion and profit shifting report, according to the organisation’s head of tax policy, Pascal Saint-Amans.

The report was published last Friday and aims to establish political agreement among the OECD’s 32 member states in developing a comprehensive framework that would eliminate the sort of aggressive tax planning that robs the exchequers of western economies hundreds of billions in lost revenue every year.

There are 15 key proposals in the report and the timeframe for its implementation is over the next 18-24 months.

In the first of a series of Oireachtas sub-committee meetings in Irish tax policy, Mr Saint-Amans praised the Government’s EU presidency for putting the report at the top of the legislative agenda.

According to the OECD, a jurisdiction must meet four criteria to be designated a tax haven. These include having a zero or nominal tax rate; no transparency over its tax codes; no exchange of information with other jurisdictions; and no real business activity. Ireland meets none of these criteria, he added.

This country received widespread coverage following US Senate hearings last month into the tax affairs of Apple as well as other US multinationals.

Committee chairman Carl Levin and fellow committee member senator John McCain both labelled Ireland a tax haven on the basis that Apple had avoided paying tax on roughly €30bn in profits by routing these profits through Irish-affiliated companies.

Mr Saint-Amans said that the aim of base erosion and profit shifting was to eliminate the tax loopholes that allowed companies to pursue aggressive tax avoidance schemes, such as the ‘double Irish’.

The base erosion and profit shifting legislation would not impinge on tax sovereignty, he added.

Ireland could not introduce any legislation on a unilateral basis that would prevent companies using schemes such as the ‘double Irish’. The Government can only apply the 12.5% corporate tax rate to companies that are tax resident in this country.

Change could only be brought about on a multilateral basis. The US government fully supported the base erosion and profit shifting proposals, said Mr Saint-Amans.

None of the practices used by these companies were illegal, he noted. The aim of base erosion and profit shifting was to reconcile where companies pay profits with where its main economic activities are located.

The UK government recently introduced legislation that would see a 10% or less tax rate applied to ‘patent box’ activities carried out by companies.

Mr Saint-Amans said the OECD planned to look into this type of legislation.

“If they are not harmful, then it can be maintained; and if they are harmful, they must be maintained,” he said.

There were two main reasons why the OECD was now taking action against aggressive tax avoidance schemes.

Taxpayers have had to fork out hundreds of billions to bail out banks. Many of these banks had been central cogs in developing tax avoidance schemes, said Mr Saint-Amans.

Over the past few years, direct and indirect taxes had risen in most countries. In this context, it was important that multinationals pay their fair share of tax, he added.