Major Governments Cracking Down on Global Tax Avoidance?

In September 2014, the OECD/G20 issued their first 7 reports/recommendations (out of a total of 15 “Actions” being addressed) to tackle “Base Erosion and Profit Shifting” (“BEPS”).

Broadly, the OECD/G20’s BEPS project boldly seeks to prevent multinational corporations from avoiding tax by shifting profits abroad to low tax, or no tax, jurisdictions, often through complex and well crafted tax schemes, which current International Tax rules have struggled to deal with.

Tackling BEPS is vital for international governments, evidenced by the fact that the 44 countries involved represent 90% of the global economy! If their ambitions are achieved, the impact on corporate profits, and tax revenues, in many economies could be significant.

Arguably, the most important report of general application is the paper on Transfer Pricing. Its main focus provides a requirement for multinationals to provide ‘Country by Country’ financial reporting to its home country tax authority (including e.g. Turnover, Profits, Taxes paid/suffered & No’s of employees – per country). The tax authority will then share this information globally in some (yet to be agreed) manner.

The OECD/G20 wishes to address all 15 Actions by the end of 2015, thus we have no doubt that many of our clients will be impacted by the new requirements on Transfer Pricing, and possibly the other 14 Actions being addressed, in the not too distant future.

Undoubtedly, the rules will have a major impact on the largest multinationals with complex tax structures. Encouragingly though, the OECD/G20 have suggested they will attempt to determine methods of exempting smaller multinationals from at least some of the new rules. It is most likely, however, that a number of multinationals, which are significantly smaller than the likes of Google and Starbucks, will be required to abide by the new requirements.

For more information contact Andrew Shaw, Tax Senior Manager, Andrew.shaw@aab.co.uk