ICRICT welcomes OECD decision to discuss radical solutions to end multinationals tax avoidance
For immediate release
30 January 2019
The Independent Commission for the Reform of International Corporate Taxation (ICRICT), welcomes the publication by the Organisation for Economic Cooperation and Development (OECD) of a “Policy Note - Addressing the Tax Challenges of the Digitalisation of the Economy”, a text showing a change of course in the strategy to fight against tax avoidance.
In 2015, the OECD has unveiled a package of reforms of the international corporate tax system, called the Base Erosion and Profit Shifting (“BEPS”). This initiative, first restricted to the G20 countries was afterwards open to non-G20 countries, including developing economies, within the “Inclusive Framework”.
The OECD BEPS has resulted in helpful solutions for some of the most shocking tax avoidance mechanisms. But it has failed to address the core problem: companies are still allowed to move their profits wherever they want and to take advantage of very low tax jurisdictions
Last week (January 23), the OECD organized a meeting in its offices in Paris to listen to all proposals, from developed and developing countries. The result of the meeting is this 3-pages policy note saying, about these proposals:
“The Inclusive Framework recognises that the implications of these proposals may reach into fundamental aspects of the current international tax architecture. Some of the proposals would require reconsidering the current transfer pricing rules as they relate to non-routine returns, and other proposals would entail modifications potentially going beyond non-routine returns. In all cases, these proposals would lead to solutions that go beyond the arm’s length principle”.
This note shows clearly that the OECD is finally ready to engage on real reforms that ICRICT has constantly advocated for:
A move beyond the arm’s length principle, the principle underpinning the current international tax architecture. This was a taboo until now.
A reallocation of taxing rights to market countries that ensure all countries, including developing, get their fair share of multinationals profits.
A move towards a more balanced and simplified system of allocation of income and taxes of multinationals, which is the right direction of travel towards ICRICT formulary apportionment position.
A minimum global tax, which should ensure minimum effective taxation everywhere.
Developing countries are finally been given a voice and have tabled their own proposal, which has been incorporated in the final OECD text.
The opportunity has now finally emerged to redesign international tax rules to make them fit for the 21st century.
You can read OECD’s policy note here.
You can read ICRICT’s latest paper, published last week, on what OECD BEPS process has achieved so far, and what a real reform should look like, here. Journalists can find Media Advisory here, in English, French and Spanish.
Quotes of ICRICT commissioners (Please feel free to use them)
Joseph Stiglitz, Professor at Columbia University and ICRICT Commissioner, said:
“It is time for countries to agree on a global minimum effective tax, no matter where you are producing, no matter what you do, you have to pay 15-20% of global profits in taxes. That would stop the race to the bottom”.
José Antonio Ocampo, Chair of ICRICT, said:
“We believe that the BEPS process has achieved what it could, given the political muscle of big corporations and the army of lawyers and accountants who have a vested interest in maintaining the status quo. It is time to repudiate transfer pricing and move toward a fairer and more effective system”.
Wayne Swan, former Treasurer and Deputy Prime Minister of Australia and a member of ICRICT, said:
“As the digital economy is fast becoming the economy itself, any solution should be comprehensive and deliver a sustainable international tax architecture fit for the 21st century. It means a rediscussion of taxing rights to deliver a fairer allocation of tax revenue than the current system, which has been stripping critical revenue from both developed and developing countries.”
Magdalena Sepúlveda is a member of ICRICT, former United Nations Special Rapporteur on Extreme Poverty and Human Rights, said:
“When multinationals do not pay the taxes that they owe, this means that States have fewer resources to invest in public services, such as education, health care, childcare services, access to efficient justice systems and access to public drinking water and sanitation systems. This dynamic exacerbates gender equality, because women are overrepresented among the poor and among the demographic group with precarious or low-paid jobs.
The Independent Commission for the Reform of International Corporate Taxation aims to promote the international corporate tax reform debate through a wider and more inclusive discussion of international tax rules than is possible through any other existing forum; to consider reforms from a perspective of public interest rather than national advantage; and to seek fair, effective and sustainable tax solutions for development.
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