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Countries may have to battle for revenue from digital companies once the global plan to stop tax avoidance succeeds, says the OECD’s head of tax Pascal Saint-Amans, but at least they now have something to fight for.
In an exclusive interview with Fairfax Media as global leaders arrive in Brisbane for the G20 to tackle tax avoidance by multinationals such as Apple and Google, Mr Saint-Amans said the OECD’s plan against base erosion and profit shifting (BEPS) would put an end to tax havens, but would not eliminate tax competition.
In fact, the next decade was likely to see intensified tax competition between nations as they compete for business investment, but at least they would be competing on an even playing field. “If there’s no zero-tax havens left, then countries will be keen on competing with more attractive rates,” he said.
“BEPS puts an end to harmful tax competition, but not tax competition. Some countries might move to be more attractive by reducing their [tax] rates. We think that’s fine.”
Treasurer Joe Hockey said it was “hugely important” for the globe that companies pay tax where they earn profits. “Now, it is theft when someone does not pay the tax that is due to a nation and it undermines the ability of that nation to be able to deliver the sorts of services that are essential to alleviate poverty and to reduce inequality,” he said. “We are focused on driving hard the taxation agenda that ensures that companies pay tax where they earn profits, that individuals pay tax where they should be paying the tax.”
Mr Saint-Amans said recent media reports showing Australian companies not paying tax on profits because they had shifted it through Luxembourg was an issue that had already been addressed in the BEPS plan.
Under the old rules, he said the Australian tax authorities were not told that companies had secured deals with Luxembourg authorities to lower their Australian tax bills, but under the new rules proposed by the OECD, and which G20 governments had agreed to, they would be notified.
Mr Saint-Amans said he was hopeful the OECD plan would result in governments working within a multilateral framework and come to some sort of agreement between themselves about where profits should be taxed.
In the short term, there may be an “intensification of tax audits and tax controversy because governments are frustrated and may be more aggressive”.
“As countries are more aggressive you have more controversy and more double taxation, but that’s not due to a change in international rules,” he said. “That’s about countries trying to protect themselves.”
Mr Saint-Amans said comments by business people such as Wesfarmers managing director Richard Goyder and others that the OECD plan could result in countries such as China claiming a greater share of mining company tax currently paid in Australia was being used to deflect attention from the real issue – the end of profit shifting by multinationals.
Issues of where profits should be taxed – whether at residence or source – were not new, he said. “They [governments] have been fighting for the past century,” he said. “There’s nothing new there. The only thing that’s new is there are emerging countries which have more power than they had in the past. They have more of a voice than they used to in the past.”
All these economic powers had realised that since the rise of digital companies such as Google, they had been sharing a pie that was shrinking.
“Now, instead of having profit in Bermuda, you have the profit go back to countries, which will mean countries have to decide how to share it. It’s been exacerbated because you have emerging countries [such as China] saying ‘at source’, and residence countries like the US saying ‘at residence’.”
