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April 2, 2014 11:10 pm
Small, low-tax countries such as Ireland stand to benefit from the looming crackdown on tax avoidance by multinationals even though they will no longer be able to route profits to tax havens, according to officials drawing up plans to overhaul the international tax system.
The Paris-based Organisation for Economic Co-operation said structures such as the “double Irish” that move profits from Ireland to countries like Bermuda were set to be dismantled.
However Pascal Saint-Amans, the OECD’s top tax official, denied the planned reforms had an inherent bias against small low-tax nations. Countries like Ireland could benefit from the changes as they would end up competing with higher tax, rather than zero-tax countries, he said. “It is about putting an end to the divorce between profits and tax allocation, not about putting an end to tax competition,” Mr Saint-Amans added.
In a briefing on Wednesday, the OECD said the ambitious project to overhaul the international tax rules to address base erosion and profit shifting (BEPs) by the end of next year was “on track”.
The new country-by-country reporting rules agreed at a meeting of G8 countries last summer are designed to give governments insights into a company’s structure and tax arrangements, helping the authorities target their audits more effectively.
However, the first draft of the rules released in January sparked widespread complaints from business about the huge amount of data they would need to provide, forcing the OECD to rein in its initial plans.
Joe Andrus, head of transfer pricing, said it was important to clarify that the ‘masterfile’ that a company would be required to send to the tax authorities containing details about its activities was designed to be only a “high level overview”.
Businesses had warned it would require thousands of pages to meet the requirements that were set out in January, Mr Andrus acknowledged. But in a series of “tentative decisions” taken last week, the OECD intended to cut down some of the reporting requirements. However, the OECD still wants to retain plans which would oblige companies to report the number of employees, tangible assets, capital and retained earnings on a country basis.
Businesses have expressed fears that providing these details – specifying the employees, assets and capital employed in each country – could be used to calculate tax bills according to a formula rather than the ‘arm’s length standard’, the internationally-agreed way of dividing up taxable profits. In a submission to the OECD, the United States Council for International Business said: “Business is especially concerned about non-OECD member countries, particularly developing countries with significant capacity constraints, using this information inappropriately.”
Mr Saint-Amans insisted that the BEPS action plan involved “no hidden agenda” that would usher in formulary apportionment. He said the goal was “to save the arms length principle” by fixing its flaws.
Many multinationals have also expressed concerns that the country-by-country information they give to governments will become public. “Our current view is it should not be made public,” Mr Andrus said.
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