An unprecedented international collaboration on tax reform that recently unveiled sweeping plans to crack down on aggressive tax planning by multinational companies has the potential of becoming the biggest shake-up in international tax rules in nearly a century, according to tax professionals.
Endorsed by G20 finance ministers and leaders, the ambitious proposals by the Paris-based Organisation for Economic Co-operation and Development (OECD) aims to close loopholes, increase transparency to assist tax authorities in risk assessments, and restrict the use of tax havens to curb many international tax planning strategies. The plan, known as the Base Erosion and Profit Shifting (BEPS) project, lists 15 specific actions intended to establish coherent rules for corporate income taxation, prevent tax treaty abuse, tackle the tax challenged posed by the digital economy, and amend the world’s 3,000 bilateral tax treaties through a multilateral instrument.
Barely a month after the European Commission ruled that Starbucks Corp. and Fiat Chrysler Automobiles NV benefited from illegal tax deals from the Dutch and Luxembourg governments, cross-border tax avoidance will be the subject of yet more intense scrutiny after European Union lawmakers decided recently to quiz 11 multinational corporations over sweet-heart tax deals with governments.
Sophisticated tax avoidance schemes, under increasing political scrutiny as the likes of Apple Inc., Google Inc., and Wal-Mart Stores Inc. shift billions of dollars of profits out of higher-tax countries into low or no-tax jurisdictions, comes with a hefty price. The Organisation for Economic Co-operation and Development (OECD) conservatively estimates that profit shifting costs the world between US$100 billion and $240 billion in lost tax revenues. Another study revealed that the 500 largest U.S. companies hold more than US$2.1 trillion in accumulated profits offshore to avoid U.S. taxes, and would collectively owe approximately US$620 billion in U.S. taxes if they repatriated the funds.
An ambitious international effort calling for a coordinated approach to rewrite global tax rules over profit shifting risks being undermined by the number of growing countries that are unilaterally introducing significant tax reforms, warn tax experts.
The Paris-based Organisation for Economic Co-operation and Development (OECD), backed by the G20 Finance Ministers, proposed in July 2013 a sweeping series of proposals that take aim at aggressive international tax planning by multinational companies in the wake of intense political scrutiny and public outcry over the likes of Apple Inc., Google Inc. and Starbucks moving billions of profits out of higher-tax countries into low or no-tax jurisdictions.
The majority of foreign bribes were paid by large companies, usually with the knowledge of senior management, to officials from developed countries to win contracts and cut through red tape, reveals an eye-opening report from a leading think tank that shatters many commonly-held preconceptions about corruption risks.
In negotiations with a number of countries that have earned a well-deserved reputation for being tax havens, Canada is on the verge of signing its first bilateral tax information exchange agreement (TIEA) with Bermuda, granting the islands a significant tax benefit that would give it an unfair advantage over Canada’s tax treaty partners, according to tax experts.