The G20 tax reform proposals have been heralded by the Organisation for Economic Co-operation and Development as a "once-in-a-century" opportunity to fix the creaking network of hundreds of bilateral tax treaties that have been laid down over almost 100 years, smoothing the way for international trade.
The system has been pushed to breaking point by new ways of structuring cross-border business – some due to advances in technology, but many others the product of what the OECD describes as "the increasing sophistication of tax planners in identifying and exploiting the legal artbitrage opportunities and the boundaries of acceptable tax planning".
Behind the scenes there are already growing whispers that parts of the reform project will prove unacceptable to certain nations. Meanwhile, several anti-poverty campaign groups claim the project is not radical enough.
The key issues targeted by the OECD action plan are:
• Requiring online multinationals with extensive warehouse operations in an overseas country, such as Amazon, to pay local tax on any profits arising from sales in that country.
• Forcing multinationals to disclose to every tax authority a country-by-country breakdown of profits, sales, tax and other measures of economic activity such as headcount.
• Tougher rules to block transfers of high-value and mobile "intangible" assets – such as brands and intellectual property rights – to tax havens where there is little or no associated business activity.
• A crackdown on tax regimes found to have too soft an approach to multinationals deploying overseas finance subsidiaries through establishing a new international benchmark for appropriate taxation of controlled foreign companies.
• Wider measures to combat predatory tax competition policies emerging in some financially stretched countries, risking a "race to the bottom" climate on tax. The UK's new so-called "patent box" tax break for intellectual property companies will come under scrutiny.
• A raft of treaty updates to neutralise the tax advantages of complex financial instruments, schemes and structures, including hybrid capital, interest payment deductions and over-capitalisation.
• A requirement on multinationals to disclose the most aggressive "tax planning" structures to the authorities otherwise often relying on limited, local data that does not show the impact of transnational schemes to lower tax.
• New ways to rapidly introduce the OECD recommendations around the world. And a new approach to measuring the extent to which national tax coffers are being drained by multinationals artificially shifting their profits internationally to lower their tax bills
The main areas that have not been addressed by the OECD action plan are:
• French proposals for new tax rules specifically targeting digital companies such as Google, Apple and Microsoft. In addition, France's finance minister, Pierre Moscovici, had called for a link between tax and the collection of commercially valuable personal data by digital firms.
• Calls from anti-poverty campaign groups to involved developing nations – often the biggest losers from sophisticated tax engineering by multinationals – on an equal footing with representatives from larger economies.
• Wholesale scrapping of existing tax treaty principles, as advocated by campaign groups such as Tax Justice Network. These groups argue that the current system is so open to abuse it should be replaced with a new model – known as unitary taxation – which they claim would better link the apportionment of taxable profits by multinationals to the territories in which economic activities occur. The OECD claimed there was international consensus at the G20 against such a radical approach. Pascal Saint-Amans, director of the OECD's Centre for Tax Policy, said he was "agnostic" but that member nations regarded such proposals as "unfeasible".
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