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OECD tackles tax avoidance – is it fair?

It is widely recognised, not least by the G20 member states and by the OECD, that international tax rules have not kept pace with the dramatic evolution of multinational business.

The Base Erosion and Profit Shifting (BEPS) report may usher in the most dramatic international tax changes for many years, certainly since I began my career in taxes in 1976.

In an era of digital service delivery and highly evolved, technically driven consumer markets, the apparent ease with which some multinational corporations can minimise their tax burdens worldwide infuriates the governments of G20 countries. Rumours as to how the BEPS recommendations will be framed are rife. For example, some speculate that rules will be put forward which allocate revenues to jurisdictions where they are earned, thus giving taxing rights to those jurisdictions. Others think that changes will be made to the use of controlled foreign companies to save tax, particularly in developing countries.

Everyone, however, is agreed that this is a massive undertaking. Clear, simple rules are the aspirational ideal. In practice, implementation of the BEPS recommendations is likely to be complex and slow.

While the G20 leaders have made a reasonable show of unity, they are far from united. For example, proposals to change the regime for controlled foreign companies may improve an embarrassment to the UK which has just put the finishing touches to its new CFC regime.

More importantly, of course, the problem is not limited to the G20. Many feel that the real losers in multinational tax avoidance are not the treasuries of the G20 but the 150 or so developing countries for whom corporate taxes are proportionally far more important than in the G20.

If the OECD aims to introduce a kind of fairness with its BEPS proposals, then it is to be hoped that the fairness will not be limited only to the G20 but will extend to all countries.

This was posted in Bdaily's Members' News section by George Bull .