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.