OECD reveals plans to crack down on tax avoidance and win over cynics of tax reforms
The organisation for Economic Co-Operation and Development (OECD) must win over cynics when it announces its recommendations for a co-ordinated international approach to reform the international tax system later today.
The measures will range from debt relief and harmonising rules on subsidiary companies, to linking sales and tax in each country more closely by changing reporting rules.
However, its recommendations are not binding, so member countries can cherry-pick which aspects they implement, and at what speed.
Stephen Herring, head of taxation at the IoD, told City PM UK companies were “very concerned the government will ‘gold-plate’ these recommendations, while other countries will choose to protect their industries. They won’t play by the same rules.”
Despite consulting for the last two years with governments and business, most experts agree that even if countries broadly agree, putting the measures in place will be challenging.
Rebecca Reading, international tax partner at Baker Tilly, pointed to uneven implementation: “Some governments, including the UK, have already broken ranks and set up their own arrangements for attacking avoidance by multi-nationals.
“Tax authorities outside the OECD can be hard to predict and there’s also a big question mark hanging over the commitment of the US authorities.”
Yet Francesca Lagerberg, global leader for tax services at Grant Thornton, was more optimistic about countries’ participation, and told City PM: “It’s far more difficult for tax-haven countries to stand apart, and be an outlier with a different tax regime. There’s far more international pressure now.”
Commentators agree it is unlikely these recommendations would iron out all loopholes.
Chris Morgan, head of tax policy at KPMG UK, added: “It’s not reasonable to think a completely harmonised tax system will ever happen, countries want to be able to set their own rates, and keep competition, and that’s good. We don’t want to fetter competition.”