OECD action plan to curb global tax dodgers

Blueprint aims to prevent tax haven use and other strategies by big multinationals

LONDON • The world's top body for economic coordination unveiled its blueprint yesterday for cracking down on international tax avoidance, an opening salvo in what promises to be a prolonged battle between countries and firms over who gets taxed and where.

The Organisation for Economic Cooperation and Development (OECD), a research institute funded by 34 countries, is seeking to curb tax haven use and other strategies by companies such as Google, Starbucks and Apple, which the group says costs the world as much as US$240 billion (S$343.8 billion) a year in lost revenue.

"This is the most important development in international tax in quite a few decades," said Washington-based lawyer H. David Rosenbloom. "It will definitely make a difference. Exactly what that difference will be is hard to predict."

The new guidelines include a series of highly technical plans to limit strategies with nicknames like the "Double Irish" and the "Dutch Sandwich". It is the result of a three-year process initiated in 2012 by the Group of 20 nations, which asked the Paris-based OECD to develop a plan.

"The problem we had is that you could easily shift risk or capital without any tax risk," said Mr Pascal Saint-Amans, the director of OECD's Centre for Tax Policy and Administration. "You could have a cash box in a tax haven where there is nobody. This is over."

For years, big multinational companies have cut their tax bills using strategies now coming under public criticism: assigning valuable patent rights to shell companies based in tax havens; getting interest deductions for payments made to their own subsidiaries; or cutting deals with countries like Luxembourg to tax profits at low single-digit rates.

The OECD plan will be discussed at a meeting of G-20 finance ministers in Lima, Peru, on Thursday.

If they approve it, it will then be presented to the group's leaders in Turkey next month for a vote on adoption. Countries are not required to follow the OECD's recommendations, but many adopt the group's guidelines as their own international tax rules.

Tax regulations in the 34 member countries are required to conform to OECD standards, putting pressure on them to adopt some version of the group's action plan.

Although the US is the OECD's biggest funder, Congressional Republicans have criticised the OECD work on tax loopholes, calling it a way for other countries to increase taxes on US companies.

Many of the multinational companies whose tax avoidance techniques have received publicity are based in the US, India and Brazil.

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A version of this article appeared in the print edition of The Straits Times on October 06, 2015, with the headline 'OECD action plan to curb global tax dodgers'. Print Edition | Subscribe