UPDATE / July 20: A strong stress on greater cross-border information sharing by tax authorities looks to be a pivotal part of the OECD Action Plan on tax avoidance.
Full details of the plan are under embargo until 9pm tonight NZ time but a brief outline from the global think tank says there needs to be much greater co-operation between tax regulators to deal with the ability of firms operating in the "digital economy" to minimise tax.
"A borderless world of products and services that too often do not fall within the tax regime of any specific country, [leaves] loopholes that allow profits to go untaxed, OECD Secretary-General Angel Gurría says.
“This Action Plan, which we will roll out over the coming two years, marks a turning point in the history of international tax co-operation. It will allow countries to draw up the co-ordinated, comprehensive and transparent standards they need to prevent BEPS (base erosion and profit shifting),” he says.
A key focus is on firms which take what governments see as unfair advantage of laws aimed at minimising double taxation of multinational companies.
NBR will have a further update on Sunday.
OECD anti-tax avoidance initiative due tonight
July 19: The outline of the OECD’s global anti-tax avoidance plan should be known by around 11 o'clock tonight New Zealand time.
The overall thrust of the work – which has been carried out with an unusual degree of urgency – is to enable governments to get more tax out of firms such as Google, Facebook, Starbucks, Amazon and rock bands such as U2, and also to drive greater co-operation and information sharing between tax authorities.
The OECD effort, known as BEPS (base erosion and profit shifting) plan is understood to force firms to record profits more directly to the countries in which they are generated.
The plan being released tonight will only be a set of proposals and they will be finalised in September.
According to a Reuters report, the proposals include:
Closing loopholes where firms use current laws aimed at avoiding double taxation to set up dual entities and effectively pay no tax in either of the two countries concerned.
Shut down or minimise the ability of firms to shift their high-value, high-earning intellectual property to low tax jurisdictions.
EU-based “specific activity exemption” rules which allow firms – Amazon being the main one – to run retail operations in countries without paying tax.
More radical solutions which have been canvased in the lead up to the report include a global general anti-avoidance rule (GAAR) not dissimilar to the one in the New Zealand Income Tax Act.
New Zealand has been one of the few countries with a GAAR, although its use is now increasing in other countries, with India, most notably, adding it to the tax code.
The principle of the GAAR is it acts as a backstop to more specific tax provisions and New Zealand’s experience with it – and in particular the New Zealand Inland Revenue’s recent remarkable run of successes in using the rule – has been of major interest to the OECD and local tax officials and practitioners have been intensively consulted.
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