New OECD proposals target corporate tax dodgers

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

The Organisation for Economic Cooperation and Development (OECD) is seeking to curb tax haven use and other strategies by multinational giants such as Google, Starbucks and Apple, which the group says costs governments around the world as much as US$240 billion (S$342 billion) a year in lost revenue.

“This is the most important development in international tax in quite a few decades,” said Mr David Rosenbloom, an attorney at Caplin & Drysdale in Washington and director of the international tax programme at New York University’s School of Law.

The new guidelines include a series of highly technical plans to limit tax avoidance strategies with nicknames such as the “Double Irish” and the “Dutch Sandwich”. They are the result of a three-year process initiated in 2012 by the Group of 20 Nations, which asked the OECD to develop a plan.

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

Many firms avoid paying taxes through what the OECD calls “base erosion and profit shifting” or BEPS. BEPS schemes can be very complicated, but the basic idea is straightforward: Shift profits across borders to take advantage of tax rates that are lower than in the country where the profit is made.

Many of the OECD’s recommendations, if adopted, “could have a significant positive effect”, said Mr Michael Durst, a veteran international tax lawyer in Washington.

One of those: The OECD is seeking to restrict transactions between subsidiaries of the same company that generate an interest tax deduction in one country without generating taxable income in another. Another action would restrict a company’s ability to take advantage of the tax treaty benefits of countries such as the Netherlands simply by funnelling profits through paper subsidiaries there.

The OECD plan also calls for companies to disclose to regulators detailed geographic breakdowns of sales, profits and taxes paid around the world, known as country-by-country reporting.

The OECD plan will be discussed at a meeting of G20 finance ministers in Lima on Thursday. If they approve, it will then be presented to the group’s leaders in Turkey in November 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.

The BEPS reforms will likely hit low-tax business hubs such as Singapore, to which large multinationals channel their operations. Anglo-Australian mining giant BHP Billiton pays tax at an average rate of 32.5 per cent in Australia, but pays zero tax on its marketing operations in Singapore, the Australian Associated Press reported last month.

The prevailing corporate tax rate in Singapore is 17 per cent.

“We are in Singapore because it is the most appropriate place to undertake that part of the value chain. Additionally, it also has a very attractive tax rate,” BHP chief financial officer Peter Beaven was quoted by the AAP as saying, referring to the marketing operations.

BHP is contesting a A$522 million (S$525 million) Australian tax bill on its Singapore marketing operations up to 2010, the global miner said earlier this year. The figures were released by an Australian Senate panel investigating corporate tax avoidance.

The company revealed that between 2006 and 2014, its Singapore marketing business earned profits of US$5.7 billion, on which it paid just US$121,000 in taxes in Singapore.

“The Singapore government has granted BHP Billiton Marketing a tax incentive for its marketing activities. BHP Billiton Marketing was awarded this incentive for its contributions to the development of Singapore’s commodities sector,” the company said. AGENCIES