The Organisation for Economic Development and Cooperation, an advisory body for leading world economies, has finalized its recommendations to combat the outrageous tax avoidance schemes of big international firms. Multinationals like Google and McDonalds have unfair advantage due to their international presence and they use it to reduce the taxes they are required to pay. OECD says that this causes a yearly loss of $100-240 billion, almost 4-10% of global tax revenues, for governments around the world. The recommendations are targeted at such firms with revenues of at least €750 million, to ensure that other economies do not suffer from their tax evasion gambits. Companies have devised many clever ways to exploit the differences in tax rules of individual countries. Some of them include:
- Simultaneously obtaining no-tax status in two places
- Misrepresenting data to show that profits are based on operations in countries with lower taxes
- Shifting debts to subsidiaries in higher taxation countries, to show reduced taxable profits
The recommendations have received mixed reactions from stakeholders. Despite the fact that many of the recommendations are of benefit to developing countries and they have the enthusiastic support of Indian Revenue Secretary, others feel that many issues are left to be addressed. The plan (christened the Base Erosion and Profit Shifting (BEPS) plan) was criticized because it did not address tax havens related issues and failed to give detailed action plan for the growing digital economy. Businesses also raised concerns regarding the possibility of double taxation.
Manon Aubry, the tax and justice advocacy officer of Oxfam France said, “Rich governments are all bark and no bite when it comes to corporate tax dodging,” The OECD plan “will not stop multinational companies cheating poor countries out of billions of dollars in taxes—money which is desperately needed to tackle poverty and inequality,”.
The plan is, nevertheless, comprehensive and if implemented shall increase the tax revenues from major international firms.