Newspaper article International New York Times

Global Plan Targets Tax Avoidance by Companies ; U.S., Europe and China Agree on Principles to Level the Playing Field

Newspaper article International New York Times

Global Plan Targets Tax Avoidance by Companies ; U.S., Europe and China Agree on Principles to Level the Playing Field

Article excerpt

Countries should harmonize to prevent tax evasion, the Organization for Economic Cooperation and Development said in a new report.

Dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent corporations from gaming the international tax system, the Organization for Economic Cooperation and Development said in a report on Tuesday.

In a set of recommendations, the organization said the nations -- which include the United States, the biggest countries in Europe and China -- had agreed on a series of actions to ensure "the coherence of corporate income taxation at the international level" and to improve transparency for governments.

"Our recommendations constitute the building blocks for an internationally agreed and coordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favorable tax treatment," Angel Gurria, the O.E.C.D. secretary general, said in a statement.

To lower tax bills, multinational corporations move profits from high-tax to low-tax jurisdictions via subsidiaries and offshore companies using complex transactions including internal payments for interest, royalties, patents and fees.

Such strategies are usually legal, but since the beginning of the current financial crisis there has been a clear recognition in Washington and in other capitals that corporate tax planning is distorting the world economy. Furthermore, the rules governing global tax affairs, created in the 1920s, can seem out of touch when a Google, Apple or Microsoft can move millions or billions of dollars of profit from one country to another at the click of a button.

The issue has come under scrutiny by the Obama administration and lawmakers in the United States, where companies hold about $2 trillion offshore in so-called stateless funds and where corporate giants have taken to inversions, or transactions in which they move their tax residency abroad by being bought by smaller foreign firms, to reduce their tax bills at home.

In developing countries -- which are typically more dependent on corporations for tax revenue than wealthy economies, and which lack the cadre of skilled experts to untangle corporate profit-shifting structures -- there is even greater concern.

The O.E.C.D. acknowledged that the rise of Internet commerce had greatly changed the global playing field, but it stopped short of calling for rules specific to e-commerce. "Because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes," it said.

The organization, which is based in Paris and acts as a forum for discussion and research, was given a mandate in September 2013 by Group of 20 leaders to ensure that "profits are taxed where economic activities occur and value is created." The O.E.C.D. initiative, the Base Erosion and Profit Shifting Project, or BEPS, is being negotiated by the 34 members of the organization plus associated countries, including China, Russia and Brazil. …

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