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OECD calls for clampdown on tax avoidance

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14th Feb 2013
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The Organisation for Economic Co-operation and Development (OECD) has called for a clampdown on corporate tax avoidance in a new study.

The OECD said an international clampdown on corporate tax avoidance is needed to stop governments’ tax bases being eroded and a rise in tax bills for citizens and small businesses.

Complex tax avoidance schemes mean that some multinationals pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%, an OECD study found.

Some small jurisdictions act as conduits, receiving large amounts of foreign investment compared to large industrialised countries, the study continued.

Companies' tax schemes, though technically legal, “erode the tax base of many countries and threaten the stability of the international tax system,” said OECD Secretary-General Angel Gurría.

“As governments and their citizens are struggling to make ends meet, it is critical that all tax payers, private and corporate, pay their fair amount of taxes and trust the international tax system is transparent." she said.

"This report is an important step towards ensuring that global tax rules are equitable, and responds to the call that the G20 has made for the OECD to help provide solutions to the global economic crisis.”

Many existing tax rules which protect multinational corporations from paying double taxation too often allow them to pay no taxes at all and are out of date, the OECD report said.

“These rules do not properly reflect today’s economic integration across borders, the value of intellectual property or new communications technologies. These gaps, which enable multinationals to eliminate or reduce their taxation on income, give them an unfair competitive advantage over smaller businesses. They hurt investment, growth and employment and can leave average citizens footing a larger chunk of the tax bill.”

Multinationals’ tactics for reducing their tax liabilities have become more aggressive over the past decade, the OECD said.

Some companies that based in high-tax regimes, create numerous off-shore subsidiaries or shell-companies, each time taking advantage of the tax breaks allowed in that jurisdiction.

They also claim expenses and losses in high-tax countries and declare profits in jurisdictions with a low or no tax rate.

The OECD said it will work with business and governments to develop an action plan, which will “further quantify the corporate taxes lost and provide concrete timelines and methodologies for solutions to reinforce the integrity of the global tax system.”

Richard Murphy, director of Tax Research UK, blogged that the OECD had “bitten the bullet” and accepted that “major tax reform is essential” if the problem of tackling tax avoidance is to be addressed.

CIOT's president Patrick Stevens welcomed the report: “We have been saying for a long time that the international corporate tax system is designed for the mid-20th century trading economy rather than the e-enabled world of seamless multinationals we now find ourselves in,” he said.

“The system needs to change and adapt and that is difficult for individual countries to do: it needs bodies such as the OECD to take a lead. We welcome this report as a constructive move by the OECD and a start to a more focussed debate.”

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