Tuesday, 16 September 2014

The score at half time: OECD 7, Tax Avoidance ??

Today the OECD announced the deliverables on seven of their fifteen planned actions to tackle global corporate tax avoidance. (for background, see here). 

So what’s in today’s release? Quite a bit, actually. Work will continue on the digital economy, which is a good thing, as they are taking a broad holistic approach to this rather than confining their focus to techie firms. As the interim report says – digital economy is the economy now, and almost all sectors including health, education, media and financial services are impacted by the issues of mobility, reliance on data, user-created content, flipped supply chains and business models, near-monopolies and a pervasive virtuality that makes the old-fashioned taxing questions of who, what and especially where very challenging. 

There are concrete proposals on hybrid mismatches and on harmful tax practices which promise to tackle patent-box regimes. There are new proposals on preventing tax treaty abuse, but more interestingly, they’ve moved on the feasibility of a global multilateral tax treaty to replace the thousands of bilateral ones now in place. That in itself would be a game-changer. There is a lot more by way of country-by-country reporting, particularly for those patent-box regimes. The devil will be in the detail here, and of course this all poses massive challenges for developing countries who may lack the ICT infrastructure to cope. 

That and other issues will be addressed next year when the OECD report on the remaining eight actions on their original list of fifteen. This includes a lot more on aligning transfer pricing, and on data methodologies. In the meantime, because of the very public and comprehensive nature of today’s disclosure, we may see a lot of quiet tweaking of individual countries’ tax rules, in anticipation of more imposed changes. 

There are issues of democracy and mandate in all of this. None of these rules can officially be imposed on the world – they have not been voted in democratically anywhere yet. The OECD can change their model rules and the member countries will abide by them. The G20 are on board in general terms and together, they control 90% of the world’s economy (as Pascal Saint-Amans pointed out happily today). So there is an economic mandate, but not a democratic one. Developing countries are consulted, and the UN can observe, but what they are observing is a small group of rich nations acting in concert. But act they have, and next year, when the remaining eight proposals are brought forward, we will see a significantly-changed corporate tax landscape. Winners, losers, yet to be determined, but certainly some companies will pay some more tax. Somewhere. 

Sheila Killian

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