OECD heralds global tax dodge crackdown

Announcement on 'base erosion and profit shifting' project due early tomorrow morning.

UPDATEDGlobal tax rules take step closer - but fears remain

EARLIERMultinational companies are bracing for a huge tax onslaught from early tomorrow morning when an international taskforce publishes plans for major tax system reform.

Inspired to crack down on tax dodges such as the Double Irish and the Dutch Sandwich, the Organisation for Economic Co-operation and Development says its “base erosion and profit shifting” (Beps) project “provides governments with clear international solutions to address the gaps and mismatches in existing rules which allow corporate profits to ‘’disappear’’ or shift to low/no-tax locations, where no real value creation takes place.”

Activities targeted by the OECD measures include loading up subsidiaries with related party debt and channelling sales revenues to low-tax jurisdictions. Multinationals such as Google and Apple have been strongly criticised for using the latter technique.

Andy Archer, international tax partner at EY in Auckland, says the announcement heralds “the biggest change to the international tax rule book since it was put in place before World War II.”

Corporate practices on debt deductions are a particularly significant change, he said.

“The proposals here are far-reaching and depart from many countries’ existing practice. They go far beyond our already-low thin capitalisation restrictions and seek to deny interest deductions that exceed global group indices.”

Large numbers of businesses operating in New Zealand are likely to be affected, he said.

“Our client base is loaded with local business subsidiaries of global companies.”

Other areas of focus will involve the definition of “permanent establishment,” which affects the ability to divert sales overseas, as Google and Apple have done, and country-by-country reporting of profits and taxes.

“It’s a whole new paradigm of transparency never seen before,” said Mr Archer.

The OECD has been working on the Beps project since July 2013, when the G20 nations agreed an action plan.

Its final outcomes will be presented by Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, during a webcast news conference at 2pm (Central European Time).

 A technical briefing via webcast on the BEPS deliverables will follow, at 4pm (CET).

 To register for the two webcasts, go to: http://oecd.streamakaci.com/beps/.

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