Monday

25th Sep 2017

G20 to discuss tax avoidance rules, but critics dubious

  • The OECD proposes a requirement for companies to provide tax officials a country-by-country report of their activities. (Photo: Steven Shingler)

The European Commission has welcomed new international tax rules proposed on Monday (5 October) as "a very important milestone", but critics say tax avoidance on a scale revealed last year in the so-called Luxleaks scandal will still be possible.

The Organisation for Economic Cooperation and Development (OECD), which came up with the new rules, said on Monday that governments lose between $100 billion (€89 billion) and $240 billion (€214 billion) annually because multinational companies use aggressive tax planning methods to pay as little tax as possible.

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The OECD figure, which it says is "conservatively estimated", represents 4 to 10 percent of the world's corporate income tax revenues.

Angel Gurria, secretary-general of the OECD, says tax avoidance strategies erode the trust of citizens in the fairness of tax systems. His organisation uses the term "base erosion and profit shifting", or BEPS, to refer to the issue.

"BEPS is depriving countries of precious resources to jump-start growth, tackle the effects of the global economic crisis and create more and better opportunities for all", said Gurria in a statement.

He added that the measures proposed by OECD "will put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation, and when fully implemented, these measures will render BEPS-inspired tax planning structures ineffective".

The measures include a requirement for companies to provide tax officials a country-by-country report of their activities.

The OECD was tasked two years ago to come up with measures used by the industrialised countries that make up the group of twenty, or G20.

On Thursday (8 October), finance ministers of countries that are part of the G20 will discuss the new rules in Peru. The G20 includes Germany, France, Italy, the UK, and the EU (represented by the Commission and the European Central Bank).

EU tax commissioner Pierre Moscovici on Monday said the OECD package of measures will "help countries around the world find common solutions to common tax challenges".

His boss, Commission president Jean-Claude Juncker, came under political fire last year, when it emerged that Luxembourg was approving tax-avoidance strategies during Juncker's time as prime minister of the small European duchy. The scandal, which involved Luxembourg providing companies with secret, attractive tax rulings, was dubbed Luxleaks.

"We must now ensure that these measures are implemented consistently and coherently, to ensure a level playing field for all businesses and countries involved", added Moscovici in a statement.

Loopholes

However, critics say that even if all measures are implemented, a continuation of Luxleaks-type tax avoidance facilitated by tax rulings is still possible.

"The fact that such rulings exist is strongly linked to the fact that the international tax laws are highly complex and full of loopholes, and that many countries have introduced different types of special tax arrangements for multinational corporations", said Eurodad, a network of European NGOs.

"Whereas the OECD BEPS will not change the practice to use secret tax rulings, it will increase the complexity of the international tax system", it added.

NGO Tax Justice Network said the new rules were weakened thanks to an "army of paid corporate tax advisers and lobbyists".

"This has been the first serious global effort to combat widespread corporate tax cheating – and that in itself has been a huge step forward", it said in a statement. "[However,] many of the proposals are weak, and will still provide multinational companies with opportunities to move profits away from the countries where those profits are generated, and in doing so reduce tax revenues."

PriceWaterhouseCoopers, one of the four consultancy firms that is heavily involved in helping companies pay as little tax as possible, also called the new rules a "milestone".

"Much hinges on whether, and how, governments worldwide decide to implement the recommendations. … For areas where the OECD has found it harder to reach consensus there is the risk that countries introduce their own measures which could well result in a real risk of double taxation for businesses", the company said.

Investigation

EU bank accused of muzzling watchdog

An ongoing review of the the European Investment Bank's "complaints mechanism" could make the oversight branch less independent and less effective.

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