Fri, Jun 09, 2017 - Page 10 News List

OECD nations move on tax dodging

MULTINATIONALS:A top goal of the pact signed by more than 60 nations is to end ‘treaty shopping,’ where companies use bilateral tax treaties to avoid paying taxes


More than 60 countries on Wednesday signed a convention that aims to hinder multinational firms that shift profits around the globe to reduce their tax bills.

One notable absence from the convention was the US, which judges its own rules sufficient.

“This convention is the result of very strong political will to put an end to aggressive tax planning,” said Pascal Saint-Amans, director of the tax policy and administration center at the Organisation for Economic Co-operation and Development (OECD), where the convention was signed.

The OECD, which provides policy advice to advanced economies, has spearheaded the international effort to get nations to harmonize their rules. That would make it more difficult for multinationals to use legal loopholes to shift profits to low-tax jurisdictions using complicated accounting schemes, a practice often called tax avoidance or tax optimization.

The initiative was undertaken amid growing outrage over large multinationals paying almost no taxes while the public in many nations faced tax and spending squeezes in the wake of the global economic crisis.

One of the convention’s main aims is to put an end to so-called treaty shopping, whereby multinationals take advantage of bilateral tax treaties between two countries to escape paying taxes.

It is a practice that has become so prevalent it is almost an “industry,” Saint-Amans said.

He cited a Dutch government study that estimated there are between 8,000 and 12,000 tax lawyers whose practice is limited solely to treaty shopping.

To counter the practice the OECD convention will automatically change the terms of bilateral tax treaties of signatories.

“This is without precedent,” Saint-Amans said. “It has never been done.”

It is a solution that has the advantage of speed and simplicity, rather than asking each nation to amend each of its tax treaties with its partners.

Saint-Amans said he expects another couple of dozen countries may sign by the end of the year, taking the total to nearly 90.

“It is a success for the OECD, which is becoming the international organization for taxes,” one diplomat said on condition of anonymity.

While the OECD has not disclosed the signatories, Saint-Amans has previously said that several nations and territories with tax treaties that were popular among multinationals, such as the Netherlands, Belgium, Luxembourg, Singapore and Hong Kong, have indicated they will join.

Among those who will not sign is the US.

“A decision was taken before the arrival of Donald Trump at the White House,” a diplomatic source said.

While the newly elected president has upended US trade and environment policy by signaling its withdrawal from multilateral deals, the source said this was not the case with cooperation on tax matters.

Saint-Amans also downplayed the absence of the US.

“Their tax treaties are good and very robust; they don’t have bad ones,” he said.

“The United States doesn’t represent a threat for the rest of the world” in terms of reducing tax avoidance, he said.

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