Friday, 31 May 2013

Anti-corporate tax avoidance measures taking shape

And this is just in the UK
The Organization for Economic Co-operation and Development (OECD) is looking into what action might be taken to curtail corporate tax avoidance schemes, a subject that has been much in the media of late. Leading politicians are responding to outcries coming from commentaries about what little tax is being paid by mega-global businesses on sales of billions, by shuffling profits around the world. This despite protestations from the latter, who say that they are not breaking current law. Among new legislation or measures being studied are tweaking or eliminating double-tax agreements (DTAs) between countries that can allow for neither country taxing a corporation, so-called transfer pricing and improvements to, even>>>the obligation of, exchanging fiscal information among OECD countries, as well as bringing some of the more outrageous off-shore corporate tax facilities to heel.>>>

Pascal Saint-Amans, who heads the OECD's tax centre, said recently in an interview with Reuters, that it is politically impossible to have a situation of crisis, unemployment, an unhappy electorate facing tax increases and cutbacks, without recovery immediately in sight - and at the same time large, global, very profitable corporations not paying a penny in taxes.

The subject has most prominently been headlining the British media for some weeks if not months, including extensive reports on parliamentary committees close questioning some of the world's top business leaders, some of whom did not come away unscathed.

Just the other day, British Prime Minister David Cameron waded into the controversy by calling on the EU to organise what he called 'radical' international measures to at least begin to try to do something about the situation.

Cameron wants to have discussions at the G8 summit meeting Britain is hosting later this month, but the OECD is scheduled to deliver its recommendations at the G20 meeting in July.

However, nothing has yet been agreed except, according to Saint-Amans, the proposal that amendments be made to DTAs, which in fact the European Commission recommended last December and no action has been taken.

While the OECD has no figures on how much tax money is lost through these schemes, one of its proposals is that such measurements be taken.

Intellectual property 'royalties'
One of the wider loopholes in current international legislation is what is called 'parking' of intellectual property rights, such as brands or work processes, in a subsidiary located in a tax haven. This subsidiary then 'charges' its affiliates in major markets hefty fees for the right to use them, according to an explanation by El País.

There are other ideas from the OECD, including putting financial instruments under the same tax treatment. At present, different countries treat convertible bonds, for example, differently: in some they are considered bonds, in others, they are seen as shares, a dichotomy that allows for a form of arbitrage by transferring the money from one country to another.

Opacity vs. transparency
The information on cross-border financial transactions is currently fairly opaque. The OECD is urging its member countries, and companies, to be more transparent and spontaneous.

This would mean in many cases, that one country seeking information on a specific suspicious transaction would not have to go through lengthy court procedures to obtain it, thus speeding up the process.

Very few countries have signed up to trax treaties that guarantee automatic information sharing, but, according to El País, the OECD expects the G20 group to agree to take it up in July or September.

In the meantime, the Spanish government recently announced a draft proposal for its own Transparency Law, which experts agree, is so full of holes it is almost worthless.

Current laws need to be implemented
According to El País, UK lawmakers have said that a recent Reuters report showed Google employs sales staff in the UK where telling the tax office that sales are made from Ireland, which raised questions about whether the power of existing tax law had really been tested.

Google says UK staff do not sell to UK customers but has not said whether they negotiated with customers, had sales targets or ‘closed’ deals. Job advertisements on its website had said recruits would be expected to conduct such role.

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