OECD to publish first proposals on tax avoidance; Big tech on backfoot

The OECD will today publish its first recommendations for a co-ordinated international approach to combat tax avoidance by multinational enterprises under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. Meanwhile there is already evidence in Europe that the confluence of massive tax avoidance and increased concerns about privacy is fanning a blowback against the dominance of big US tech companies.

Update: OECD proposes biggest reform of global business tax rules since 1920s

In Australia research commissioned by advocacy group Tax Justice Network, in advance of a meeting of G20 finance ministers and central bank governors in Cairns next week, shows that a survey of 1000 people found that there is widespread support to make corporate tax in Australia more transparent.

Nine out of 10 voters believed it was unacceptable for foreign multinationals to operate in a country and not pay any taxes, even if they were abiding by the law.

The Sydney Morning Herald reports that companies such as Apple, Google, IKEA, and Glencore have been accused of deliberately reducing their tax bills in Australia by relocating profits overseas.

Almost two thirds of people surveyed said they felt negative about companies such as Apple for using loopholes to avoid tax and there was also increasing support for rules to be tightened at the G20 summit.

Joe Hockey, Australia’s federal treasurer (finance minister), warned last week that the government would not stand “idly by” while big companies shirk their responsibility to pay tax.

He demanded that the Commissioner of Taxation “double his efforts” to crack down on companies considered a risk to the tax system.

The G20 (group of twenty) comprises the world’s biggest developed and emerging economies and last week the United Nations Conference for Trade and Development (UNCTAD) agency said in a report [pdf] that a large proportion of illicit financial flows – – which make use of all kinds of mechanisms for circumventing judicial and regulatory oversight – – goes through offshore financial centres, based in “secrecy jurisdictions”. Approximately 8–15% of the net financial wealth of households is held in tax havens, mostly unrecorded.

“The resulting loss of public revenue amounts to $190−$290bn per year, of which $66−$84bn is lost from developing countries, equivalent to two thirds of annual official development assistance. As for corporates, their main vehicle for tax avoidance or evasion and capital flight from developing countries is the misuse of ‘transfer pricing’ (i.e. when international firms price the goods and services provided to different parts of their business to create profit–loss profiles that minimize tax payments). By this means, developing countries may be losing over $160bn annually, well in excess of the combined aid budgets of developed countries.”

Google’s general web search service has a market share of more than 90% in the EU, compared with 68% in the US, and last week the European Commission cancelled a deal with the US tech giant in respect of claimed market abuses and privacy issues, following pressure from the German and French governments and commercial rivals.

In an interview published in the Financial Times today, Germany’s justice minister goes so far as demanding that Google disclose a key aspect of its intellectual capital.

Joaquín Almunia, outgoing European commissioner for competition, has said that one of the main issues with Google is its use of its dominant position in search to enter other markets – – the so-called vertical search services – – where it faces more competition. Other concerns in the investigation relate to the use by Google of third-party content as well as contractual elements of AdSense and AdWords.

Heiko Maas, Germany’s justice minister, says in the FT that Google has to become more “transparent” about the algorithm used to create search engine rankings.

A decade after the phrase, “Don’t be evil” was included in the formal prospectus of the IPO (initial public offering), it has come to this and the revelations of massive European tax avoidance in recent years has not helped the reputation.

Edward Snowden, an employee of defence contractor Booz Allen Hamilton at the US National Security Agency, began leaking information on public surveillance in May 2013 and how US tech companies were sharing user data with the agency.

Facebook has downplayed the importance of privacy in the digital age and in August 2013 a blog post in The New York Times noted: “Privacy controls are still buried in at least six different menus. To plunge down the rabbit hole, click on the little lock icon next to your name in the top-left column of your news feed page. You will find privacy settings in the tabs for Privacy, Timeline and Tagging, Blocking, Followers, Apps and Ads.”

Peter Thiel, a native of Germany and early investor in Facebook, told the FT: “Silicon Valley is quite oblivious to the degree to which this crescendo of concern is building up in Europe. It’s an extremely important thing and Silicon Valley is underestimating it badly.”

Angel Gurría, OECD secretary general, will present the first BEPS deliverables with Pascal Saint-Amans, director of the Centre for Tax Policy and Administration, during a press conference beginning at 2:00pm (CET/ 1:00pm Irish time) at OECD headquarters in Paris.

The news conference will be streamed LIVE at: video.oecd.org.

A technical briefing via webcast on the BEPS deliverables will follow, at 4:00 p.m. (CET). To register for this webcast, go to:www.oecd.org/tax/beps.htm

The BEPS Project aims to provide governments with clear international solutions for fighting corporate tax planning strategies that exploit gaps in existing rules and allow profits to ‘’disappear’’ or shift to low/no-tax locations. OECD work is based on a BEPS Action Plan endorsed by the G20 in July 2013, which identified 15 key areas to be addressed by 2015.

The first set of BEPS deliverables will be presented to the G20 meeting of finance ministers on 20-21 September in Cairns, Australia. The instruments and reports relate to:

The Tax Challenges of the Digital Economy

Hybrid Mismatch Arrangements

Harmful Tax Practices

Tax Treaty Abuse

Transfer Pricing & Intangibles

Transfer Pricing Documentation and Country-by-Country Reporting

The Feasibility of Developing a Multilateral Instrument on BEPS