OECD launches plan to stop firms 'abusing' tax rules

Anti-tax avoidance campaigners protesting in central London Tax avoidance by big firms sparked protests this year

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Existing tax rules need updating as they can be "abused" by multinational companies, according to the Organisation for Economic Co-operation and Development (OECD).

It has launched a plan to update and co-ordinate national tax laws.

There was criticism in the UK earlier this year when it emerged that Google, Starbucks and Amazon paid little tax despite having big UK operations.

Following that criticism Starbucks agreed to pay more tax.

The OECD came up with the plan at the request of the G20 group of leading nations. Finance ministers from the G20 are meeting in Moscow.

Closing gaps

OECD secretary-general Angel Gurria said: "International tax rules, many of them dating from the 1920s, ensure that businesses don't pay taxes in two countries - double taxation.

Analysis

It's a plan to produce a plan.

At a time when there's much controversy about corporate tax, the OECD has certainly succeeded in grabbing the headlines. But will it produce any real results?

There is significant political support for the idea of a crackdown on tax evasion and avoidance. The British Chancellor of the Exchequer George Osborne and several other European finance ministers have been pushing this agenda.

In the United States there is political capital to be earned by being tough on multinationals.

Nonetheless, the OECD still has to come up with the detailed proposals and then governments have to choose to implement them.

Some probably will be co-operative. But the OECD has no power to compel those who are not.

"This is laudable, but unfortunately these rules are now being abused to permit double non-taxation."

It is calling for greater international co-operation to close gaps that allows income to "disappear" for tax purposes.

The OECD also said that tax income should reflect the economic activity it generates.

That would address some of the criticism aimed at big companies.

Earlier this year, Google was fiercely criticised by UK MPs for routing £3.2bn of UK sales through Dublin and paying little tax as a result.

Starbucks has been questioned for transferring money to a Dutch sister company in royalty payments.

And Apple's chief executive Tim Cook was questioned by US lawmakers about the billions of dollars his company keeps in its Irish divisions.

The companies point out that these schemes are legal and they have a duty to their shareholders to minimise their tax bills.

Corporate responsibility

British Prime Minister David Cameron said he was "delighted" the OECD had produced the report.

"Taxpayers, governments and businesses all suffer when some companies manipulate the tax system to avoid paying their fair share of taxes," he said.

The OECD hopes its recommendations will be put into action over the next two years and is working on an international legal structure that would help countries introduce the new rules quickly.

"Multinationals still have not grasped that tax honesty is an integral part of corporate responsibility," said Florian Wettstein, professor of business ethics at the University of St. Gallen, based in Switzerland.

"As a result, the public increasingly perceives them as hypocritical and untrustworthy."

Campaigners say that aggressive tax policies are particularly hard on poorer nations, who need all the tax revenue they can generate.

ActionAid tax campaigns manager Chris Jordan said: "For the developing countries that lose billions of dollars each year to aggressive tax avoidance, the stakes couldn't be higher.

"It's vital that they have a seat at the table, so global tax rules aren't stitched up by the major powers."

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