Tax dodgers face a global crackdown
THE biggest overhaul of international tax rules for decades will spell an end to the ‘ immoral’ tactics used by Google and other firms to avoid paying their dues, campaigners hope. Recommendations to shake up the global tax structure are being unveiled today by the Organisation for Economic Co-operation and Development.
The report comes after a two-year study designed to update the current laws, many of which were brought in during the 1930s.
The advance of the internet and the rise of intangible services – such as internet advertising – has allowed some firms to take advantage of the outdated rules and create structures that sees them pay little tax anywhere, it will say.
The OECD’s top tax offi- cial, Pascal Saint-Amans, has previously described the review as a ‘once in a century’ chance to overhaul the system.
Speaking in 2013, he said the report would show multinational firms that ‘ the golden age of “we don’t pay taxes anywhere” is over’.
The report is expected to tackle the many techniques used by large firms such as Google and Apple to whittle down their global tax bills.
These include cracking down on rules that companies use to funnel money out of the UK and into low tax jurisdictions such as Luxembourg, Ireland and the Netherlands.
Currently some firms run their European operations from tax havens, with local operations registered as service companies which are paid a nominal fee by the company’s headquarters.
For example, Google claims that its deals to sell internet advertising are processed in Ireland in spite of large sales forces based in the UK and elsewhere across the Continent.
But some firms have already begun reforming after sensing that change is coming.
Amazon recently restructured its business to pay more tax in the UK.
Instead of booking all of its European business in Luxembourg, it has begun registering British sales in its UK division – leading to higher sales and profits, which are taxed, in Britain.
The move was widely seen as pre-empting the OECD’s decisions. There is debate over whether the new rules will benefit Britain.
While some expect a windfall for the Chancellor from increased taxes, many British firms use the same rules to funnel money back to the UK.
Some tax accountants suggest Britain might be worse off after the changes.
For the rules to have their intended impact, all of the countries will have to agree to apply them.
The UK has already done this. But many, including the US, have not yet committed to it.
Rebecca Reading, international tax partner at Baker Tilly, said: ‘The question remains – will these proposals actually fix the international tax system and, in particular, will they solve the problem of tax avoidance by multinationals?’