PARIS Feb 12 A sweeping overhaul of
international corporate tax rules is urgently needed to stop
savvy big companies escaping the payment of billions of euros to
cash-strapped governments, the OECD said on Tuesday.
Governments face a growing outcry from voters to force big
companies with extensive international business to pay more tax
in wake of mounting evidence that many use differences between
different countries' rules to reduce their tax bill.
The Paris-based Organisation for Economic Cooperation and
Development said multinational companies were increasingly
reporting profits in different countries from where their
revenues were generated to avoid taxes.
The trend comes against the backdrop of falling taxes on
businesses as OECD governments have trimmed their statutory
corporate income tax rates to an average of 25.4 percent in 2011
from 32.6 percent in 2000.
However, the effective tax rate paid by companies is often
far lower due to deductions, allowances and a range of measures
that firms use to reduce what they pay to the tax authorities.
In a report prepared for the Group of 20 (G20) economic
powers ahead of a meeting of its finance ministers in Moscow
this week, the OECD warned that governments were not alone in
"If you are a multinational you will be able to reduce your
taxes substantially because the international tax architecture
is completely out of date," OECD director of tax policy Pascal
Saint Amans told journalists.
"However, if you are a purely domestic business, then you
will have a lot more difficult time and will be at a competitive
disadvantage," he added.
CHANGE OF LAW
British lawmakers are mulling changing the law following
revelations about how companies such as Starbucks,
Apple, Google and Amazon use complex
inter-company transactions to cut their tax bills.
UK lawmakers grilled senior tax officials from leading
accounting firms PricewaterhouseCoopers, Deloitte
, KPMG and Ernst & Young last month
over their role in helping big companies avoid tax.
France is also studying new ways to collect more tax from
global internet companies, which often serve consumers in
high-tax countries with subsidiaries in low-tax jurisdictions in
order to reduce what they owe to governments.
Faced with challenges from online commerce, the OECD report
called for a rethink of international rules that go back as far
as the 1920s to overcome the constraints of the web of existing
bilateral tax treaties.
"The idea is to come up with proposals that can be quickly
implemented, perhaps a multilateral convention that could
replace the 3,000 bilateral conventions," Saint Amans said.
The OECD offered to draft proposals for tackling the problem
in coming months so governments could work towards introducing
new international rules within two years.
Saint Amans said support among governments is growing for a
deep overhaul of international guidelines from the OECD for
transfer pricing, which is how companies charge for services and
goods among units in the same group.
He also saw growing demand to revise rules for determining
how much business a company must do in a country to pay taxes
there, as internet firms in particular exploit weaknesses in
"If we want change and it's not going to take 10 years, then
maybe we need a multilateral instrument that sweeps aside the
existing conventions," Saint Amans said.
"If there is political support to go in this direction, then
two years would be good, but it shouldn't take more time."