International tax evasion by multinational companies that take advantage of tax-rate disparities among countries is on the rise, according to an international study group.
By claiming multiple deductions and generating fake credits, corporations can cancel out taxes owed, said the Paris-based Organization for Economic Cooperation and Development on Monday.
In a 25-page report, the OECD said billions of dollars of tax revenues were at risk through aggressive tax planning techniques used by companies to exploit tax rate differentials.
The report says companies "exploit national differences in the tax treatment of instruments, entities or transfers to deduct the same expense in several different countries, to make income 'disappear' between countries or to artificially generate several tax credits for the same foreign tax."
Link to report: www.oecd.org/document/47/0,3746,en_21571361_44315115_49805871_1_1_1_1,00.html
Companies typically use paper entities set up between home countries and foreign countries where they operate. Some strategies may be legal in countries where they are used. But the report said they pose "significant policy issues."
"The OECD strives to eliminate double taxation and other obstacles to cross-border trade and investment," Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said in a statement accompanying the report.
"At the same time, we are working hard to make sure that there are no tax loopholes between tax systems that would allow some taxpayers to gain an unfair competitive advantage."
While the OECD, which represents 34 countries, did not pinpoint the amount of taxes lost worldwide or name companies involved, it did cite recent examples in which governments had lost billions of dollars in revenue.
For example, U.S. companies using so-called "foreign tax credit generators" cost the U.S. Treasury $3.5 billion a year, the report said, referring to transactions that improperly produce tax credits from foreign countries which are then used to offset a company's U.S. taxes.
The report also cited cases in New Zealand involving four banks that were settled in 2009.
Some advocacy groups that promote anti-evasion measures, including the Tax Justice Network, an independent research and advocacy organization, have criticized the OECD's crackdown on global tax evasion, saying it does not go far enough.
(Reporting By Lynnley Browning in Hamden, Connecticut; Editing by Kevin Drawbaugh; Editing by Richard Chang)