“If you can’t tax the big guys then you are left with the little guys and the middle class, and they can’t provide enough” for the modern democratic state, according to OECD head Jose Angel Gurria.
The Paris-based body is working on tackling base erosion and profit shifting, which exploit gaps and mismatches in tax rules. Within two years, it will finalise the 15 different lines to tackle this.
“The governments will have to take decisions then, but the G20 and the G8 is fully behind it,” Mr Gurria told a conference in Brussels.
Currently, 120 countries are exchanging information on a global forum on request — a big development compared to the near impossibility of getting such information before the crisis.
But work on an automatic exchange of information is well-advanced, with 64 countries committed to the new standard, including all OECD and G20 members.
“This makes sure there is nowhere to hide,” Mr Gurria said, claiming it was a revolution.
“Billions have gone into the world’s treasuries because people know the likelihood of getting caught is higher.”
Mr Gurria said an automatic exchange is the next step: When an account is created with any financial institution, it will be reported to the account holder’s home country immediately.
There is now firm support to tackling base erosion and profit shifting from every G20 country, Mr Gurria said. Now they are all prepared to finance the work and understand it is critical for fair competition and a level playing field to ensure companies pay tax where they operate, he said.
Mr Gurria also said the days of double non-taxation are close to finished.
Double taxation is when income taxes are paid twice on the same source of earned income. Double non-taxation has potential harmful effects in terms of fairness of tax systems across countries.
“It’s legal, it’s brilliant. Tax lawyers and corporate lawyers are simply using the laws to ensure companies don’t pay taxes. We have had famous cases in the EU and USA where they don’t pay tax, and it’s their duty to pay as little as possible and preferably none,” Mr Gurria said.
“This is why states have to come in not to discourage investment but burden sharing, because the options are simple: If you cannot tax the big guys you are left with the little guys and middle class to tax, and even if you tax them up to their noses, it won’t be enough. And then politics becomes impossible.”
Base erosion and profit shifting must be tackled systemically, Mr Gurria said. While nobody would be asked to equalise their tax rates, the new codes will respect national sovereignty using one contract covering the 15 instruments to ensure it is achieved quickly.
Brendan Howlin, the public expenditure and reform minister, reacting to a study that said multinationals were paying less than 1% corporation tax in Ireland, said companies were not ‘brass plate firms’ and did have operations in Ireland.
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