OECD attacks ‘aggressive tax plans’

Technology companies need to stop “extremely aggressive” tax planning, the man charged with reforming global tax rules has told the BBC.

He says these “push the boundaries of what is legal”.

Pascal Saint-Amans, who runs the OECD’s Centre for Tax Policy, said that new standards would require companies to pay more tax in the countries where they sold goods or created revenues.

He also said companies should not use tax havens to shelter their profits.

Mr Saint-Amans’ intervention comes after years of complicated negotiations and endless summits on reforming the toxic issue of where large multi-national companies pay their taxes.

He revealed that there should be international agreement on new tax laws ready for the G20 summit of global leaders in November.

The implementation phase should then mean the rules are in place “well before” 2020.

And, according to Mr Saint-Amans, that should mean technology companies such as Facebook, Apple and Google paying more tax to the UK Treasury.

They will also be required to pay more tax in a number of other countries and publish, country-by-country, how much they pay.
Joint action

The UK has already agreed new rules on the taxation of multi-nationals – called the “diverted profits tax”.

The government predicts that companies such as Google – operating in the UK but paying tax in other jurisdictions – will already be obliged to pay hundreds of millions of pounds more tax in Britain.

Mr Saint-Amans agrees, and says that the UK rules will have to be “co-ordinated” with the OECD agreements.

In his interview, Mr Saint-Amans is clear on what he thinks about technology giants which move profits around the world to gain preferable tax rates.

“Most of these companies have been extremely aggressive, pushing the boundaries of what is legal,” he said.

“They have tried schemes that cannot resist further examination by tax administrations.

“My advice would be instead of focusing on tax planning, please do the wonderful job you are doing on innovation and be much more conservative on tax planning.

“They have been extremely aggressive and that may have sounded unfair to the audience – that you have giants making billions in profits and not paying taxes where they operate.”
Struggle

The technology companies that have been targeted by tax campaigners say that they follow all the rules laid down by governments.

What is obvious is that the modern world of global digital companies has left national tax systems struggling.

Although much of the revenue for these firms may be created in a country such as the UK, the intellectual property (the profitable bit) is actually based elsewhere, often the US, and the “sales” undertaken in a more favourable tax location such as Ireland, the Netherlands or Luxembourg.

That leaves the national “marketplace” without much tax to collect.

“The marketplaces should have something,” Mr Saint- Amans said. “They have been left with hardly anything. I think it is changing through the project we are conducting.

“[We will be asking multi-nationals] where is your turnover, where are your profits, where are your employees, where do you pay your taxes? This information will be collected by all the countries – that is a game changer.”
Rules

The technology companies say that it is for governments to decide how they tax businesses, not them, and that they have not broken tax rules.

That is an opinion Mr Saint-Amans has some sympathy with.

I ask him whether the problem has actually been created by the policymakers rather than the companies themselves.

“You are 100% right,” he replied. “The blame should be put on governments which have over the past 20 years let the rules shift away from what should have been achieved.

“We didn’t update the rules. We unfortunately needed a crisis to have this wake-up call to say we need to change because it is outdated.

“Now, governments have decided to move. It shows that when you have political support you can achieve technical changes.”

The rules were originally put in place in the 1920s to stop “double taxation” of companies operating in different countries and encourage businesses to invest internationally.

“We have moved from a world where we were so good at eliminating double taxation with tax treaties and transfer pricing rules that we have facilitated double non-taxation.

“You have rules, they are bilateral, but businesses are global. And of course they can play on the differences between the sovereignties, or the gaps. And where are the gaps? In tax havens.

“So what we need to do is fix the rules and develop better co-operation. And if we do that we put an end to double non-taxation.

“[But] we need to be balanced. Double taxation is bad [and] multiple taxation is worse because that will harm cross-border investment. And that is what we need, for growth and for employment.”
Stop

The OECD says that tax competition to encourage investment is fine. Smaller countries such as Ireland and larger countries such as the UK, with low corporation tax rates, have used it to their advantage.

“The problem we face today is not the low rate in Ireland, or the low rate in the UK,” Mr Saint-Amans said.

“It is the fact that you have $2trn of accumulated profit of US companies located where? In Bermuda or the Cayman Islands – there is no activity there.”

And that has to stop?

“Absolutely.”