The OECD hopes its plan to combat tax evasion will mark the end of an era. But NGOs have criticised its lack of ambition. EURACTIV France reports.
The international fight against tax evasion has reached a new level. After two years of preparation, the OECD unveiled the final version of its action plan to tackle tax evasion by multinational companies on 5 October.
The plan, demanded in 2012 by the heads of state and government of the G20, has enjoyed broad international support despite “considerable lobbying from multinationals, particularly American companies”, said Pascal Saint-Amans, the director of the OECD Centre for Tax Policy and Administration.
>> Read: G20 progress on tax evasion ‘modest’
Supported by over 90 countries, the BEPS (Base Erosion and Profit Shifting) project will be approved by the G20 finance ministers in Lima, ahead of its final adoption by the heads of state and government at the Antalya summit (in Turkey) on 14 and 15 November.
“Within a week, this action plan will impact upon 90% of the world economy,” Saint-Amans said. “This is only the beginning of the job, but the era of tax evasion is coming to an end.”
A set of tools
The concrete objective of the BEPS project is to put an end to the international affliction of tax evasion. Multinationals often take advantages of differences between tax systems around the world to reduce their tax bills.
Transferring profits to tax havens and selling intellectual property rights to subsidiary companies are just two of the many legal techniques some companies employ to keep their tax bills down.
And the cost to national budgets is high. Between 4% and 10% of the total revenue from corporate profit tax is lost every year (between $100 and $240 billion worldwide), according to the OECD.
To illustrate the scale of the challenge, Pascal Saint-Amans said, “20% of the foreign investments in China come from the island of Mauritius.” France has already blacklisted this country as an uncooperative tax haven.
After two years of heated discussions, the OECD’s BEPS project has emerged as a non-binding 15 point action plan that countries should start to implement from 2016. “But not all countries need to put the BEPS plan into place for it to work. It was designed to be flexible,” Saint-Amans explained.
The application of “transfer prices” between subsidiaries of the same group, to discourage companies to relocate their profits to tax havens is among the flagship measures of the package.
Another is the implementation of the automatic exchange of information on tax rulings, the agreements signed between states and multinational companies. This subject will be discussed by the European Union’s finance ministers at the Council meeting on 6 October.
Lack of ambition
But the action plan has been broadly criticised by NGOs. They say it lacks ambition, particularly on the questions of country by country transparency and “cash boxes”.
These tax provisions, widely used by multinational companies to transfer their profits abroad and reduce their tax burden, were left out of the final action plan.
“Yet the preferential tax regimes offered by certain states are at the heart of multinational companies’ tax evasion strategies. MacDonald’s was able to avoid more than $1 billion in tax in several European countries over five years thanks to a Luxembourgish cash box, and the OECD is not tackling the practice effectively,” said Lucie Watrinet, the head of CCFD-Terre Solidaire’s tax havens advocacy.
McDonalds, and other companies accused of tax evasion, have denied any wrongdoing. Their line of argument was that the schemes used for lowering taxes were all in line with national legislation.
Cash box tax evasion schemes will still be legal until 2021.
Tove Maria Ryding, Tax Justice Coordinator at the European Network on Debt and Development (Eurodad), said, “It’s clear that BEPS will fail to reach the stated objective of ensuring that multinational corporations pay their taxes ‘where economic activities take place and value is created’. It will also fail to reach the objective of ensuring that developing countries benefit from the process. [...] It’s good that the OECD recognises the value of country by country reporting, but it’s very unhelpful that they have decided that none of this information can be shared with the public."
European Commissioner for Economic and Financial Affairs, Pierre Moscovici, said, "The OECD has done impressive work to help countries around the world find common solutions to common tax challenges. The final BEPS package published today, which identifies measures towards fairer and more effective corporate taxation worldwide, is a very important milestone towards greater tax transparency and efficiency. We must now ensure that these measures are implemented consistently and coherently, to ensure a level playing field for all businesses and countries involved."
Association of Chartered Certified Accountants (ACCA) head of taxation, Chas Roy-Chowdhury, said, "ACCA has significant concerns over action point 14, dispute resolution being adequately addressed. The changes to the rules around permanent establishment (PE) are likely to lead to disputes. ACCA does not believe that the criteria set out for dispute resolution are clear and strong enough and the timescales for resolution need to be very much shorter than businesses have experienced up to now.
"Disputes need to be resolved within 12 months and there needs to be sanctions against states that do not achieve this, in the form of their being required to repay the disputed tax to the business, where this has already been received by the tax authorities or where still being contested they lose their right to continue the dispute.
“Businesses need to be sure that when disputes occur that should the decision go in their favour they can expect monies returned to them in a timely fashion. We would urge the OECD to look again at point 14 and consider how the wording can be both strengthen and clarified. “
International tax law has not always kept up with changes to the global economy, and globalisation has increased the necessity for countries to cooperate to protect their fiscal sovereignty.
To deal with the recent wave of tax scandals, the leaders of the G20 asked the OECD to propose a common framework to fight these practices, which are often legal, and to ensure that revenue is taxed where economic activities take place and value is created.
The final reports of the BEPS project were published in October 2015, two years after its launch in 2013. This is the most important change of the international tax rules in a century.
- 8 October: Adoption of the BEPS project by G20 finance ministers
- 14 and 15 November: G20 summit - Antalya