OECD unveils corporate tax avoidance proposals

In 2012 Starbucks was accused of paying minimal UK corporation tax

Companies should pay tax in the countries where they conduct business under new proposals intended to cut corporate tax minimisation.

An OECD/G20 report found laws allowing companies to shift profits to low-tax jurisdictions means that between $100bn and $240bn is lost annually.

That equates to between 4% and 10% of global corporate tax revenues.

While governments are being encouraged to adopt the proposals, they do not have to implement them.

The final report from the Base Erosion and Profit Shifting (BEPS) Project found that no single rule was to blame for making profits "disappear" for tax purposes.

Rather, it was the "interplay among different rules... domestic laws and rules which are not co-ordinated across borders, international standards which have not always kept pace with the changing global business environment and an endemic and worrying lack of data and information".

Transfer pricing

The report outlines measures intended to combat the practice of transfer pricing - whereby companies conduct transactions between different parts of the same organisation.

Companies will now be required to outline their global business operations and transfer pricing policies in a "master file", with more detail in a "local file".

"Country-by-country reporting will provide a clear overview of where profits, sales, employees and assets are located and where taxes are paid and accrued," the report stated.

Richard Murphy, of Tax Research UK, said the proposals represented some progress but that the governments of the UK and US in particular were not committed to implementing them.

"Anyone who thinks that this will solve the problem with international tax is living in cloud cuckoo land," he said.

George Osborne's plan to cut corporate tax rates meant that the UK was embroiled in a "race to the bottom" of tax competition rather than tax co-operation with its neighbours, Mr Murphy said.

A Treasury spokesperson said the recommendations would be considered in full: "The government was instrumental in calling for international action to tackle corporate tax avoidance and has been fully supportive of the OECD BEPS process since it began in 2013."

'Sticking-plaster approach'

The charity Christian Aid said the proposals amounted to a "sticking-plaster approach" that would allow global companies to keep depriving poor countries of billions every year.

Toby Quantrill, its principal adviser on economic justice, said: "Any potential the OECD experts had to recommend effective solutions has been thwarted governments' unwillingness to stand up to multinationals and the tax avoidance industry."

ActionAid tax policy adviser Anders Dahlbeck said: "This tax deal has been cooked up by a club of rich countries and fails to properly tackle tax avoidance by large multinationals."

The BEPS project, which began in 2013, involved all OECD and G20 member countries and is said to be the most significant revision of international tax rules in decades.

It was partly a response to consumer anger about multinational companies such as Starbucks and Amazon paying small amounts of tax in countries such as the UK despite having sales worth billions of pounds.

In 2012, a Reuters investigation found that Starbucks paid just £8.6m in UK corporation tax over 14 years, despite making sales worth more than £3bn in UK sales since 1998.

New measures will ensure that governments review rules intended to attract "paper" profits rather than substantial business activities.

A new framework to ensure greater transparency between governments is also proposed.

Rules have also been devised to ensure that value-added tax is collected in the country where the consumer is located.

Implementing the changes was now the next step, the report said, with a new framework for monitoring set to be drawn up.

Bill Dodwell, head of tax policy at Deloitte, said it was up to governments and tax authorities to make the proposals into law, but that prudent companies would start planning for them very soon.

The measures will be presented to a meeting of G20 finance ministers on Thursday in Lima and G20 leaders at a November summit in Antalya.