Proposals to tighten global and corporate tax rules, entitled Base Erosion and Profit Shifting (BEPS), were published on Monday 5 October by the Organisation for Economic Co-operation and Development (OECD).
The reworked tax rules, aimed at closing loopholes so that international companies pay corporate tax in countries where their profit is made, culminate in a 15 point plan that has taken OECD and leaders of the G20 more than two years to finalise.
The final measures include minimum standards on country-by-country reporting, which give tax administrators insight to international company’s global activity; treaty shopping, to put an end to channeling investment though conduit ; axing harmful tax operations, especially in the area of intellectual property and through automatic exchange of tax rulings; and effective mutual agreement procedures, to ensure that the fight against double non-taxation does not result in double taxation.
The package will be presented to G20 finance ministers at their meeting on 8 October, in Lima, Peru.
The central focus of BEPS is to improve corporate tax transparency and redress the complex network that allows international companies to shift their profits to lower cost jurisdictions.
In the run up to Monday’s publication, the OECD encouraged governments and tax officials to communicate with each other so that creative tax planning techniques can be stopped.
The BEPS project has been fraught with cynicism and support, with some business leaders continuing to express concern over double taxation, while countries like the UK steam ahead with arrangements to tackle other forms of tax avoidance.
Deloitte UK head of tax policy Bill Dodwell said he does not agree that the OECD has bitten off more than it can chew by trying to clampdown on the international corporate tax system.
"That’s a technical view of things. The fact is that, politically, the OECD and the G20 had to [introduce BEPS] quickly," he said.
"They have worked incredibly hard and so have the 62 governments involved. While they all acknowledge there is more to be done, they have come up with something quite remarkable given the time frame.
Baker Tilly international tax partner Rebecca Reading commended the OECD its recommendations and said there is an opportunity to reduce tax avoidance by multinationals.
"But there was also some realism in its acknowledgement that many challenges lay ahead. Lots of questions remain as to the ability and willingness of countries to enact these recommendations, and how long the process will take," she said.
ActionAid, a global NGO, published a report arguing that the BEPS rules do not deal with fundamental problems in the tax system and do not address the needs of poor countries.
According to the NGO, the OECD is the wrong forum to discuss this topic, calling for an intergovernmental tax body under the United Nations to take the lead on reforming the international tax system.
ActionAid Tax Policy Advisor Anders Dahlbeck said the BEPS rules have been cooked up by a club of rich countries, thus failing to properly tackle tax avoidance by large multinationals.
"The global tax system needed major surgery, instead we got a sticking plaster. Every year developing countries lose an estimated $200 billion a year to corporate tax avoidance. [The rules] ignore the problems faced by the world’s poorest countries in collecting their fair share of tax from corporations," Dahlbeck said.