OECD presents united front against aggressive tax optimization
The revenue that states are losing due to international tax optimization by large companies is back into the focus of the Organization for Economic Co-operation and Development (OECD). According to the OECD study "Addressing Base Erosion and Profit Shifting", multinational corporations are eroding the tax base and disproportionately shifting their profits.
As a result, the study, made on behalf of the G-20, comes to the conclusion that international companies can reduce their tax burden to five percent using gimmicks, while smaller companies are charged 30 percent. To prevent small businesses continuing to be disadvantaged and citizens from losing out, when the study was presented on February 12, 2013, the OECD urged stronger international cooperation on corporate taxation.
OECD Secretary-General Angel Gurría commented, "These strategies, though technically legal, erode the tax base of many countries and threaten the stability of the international tax system. As governments and their citizens are struggling to make ends meet, it is critical that all tax payers - private and corporate - pay their fair amount of taxes and trust the international tax system is transparent. This report is an important step towards ensuring that global tax rules are equitable, and responds to the call that the G-20 made in 2008 for the OECD to help provide solutions to the global economic crisis."
Many of the existing rules where intended to protect multinational corporations from double taxation. In practice, this often results in them not paying any taxes at all According to the OECD report, the practices that multinational enterprises use to reduce their tax liabilities have become more aggressive over the past decade. OECD research on foreign direct investment (FDI) has also shown that there are small states and territories that serve as temporary stopovers for these investments. In relation to major industrial nations they receive a disproportionate amount of FDI and also invest a disproportionate amount in industrialized and emerging countries.
In addition, since it is up to each government to decide its own tax rates, the report does not contain any proposals for optimal tax rates. In the coming months, OECD would like to draw up an action plan, developed in cooperation with governments and the business community, to reinforce the global tax system.