Top economies move to crack down on corporate tax evasion

But head of tax at EY Australia Craig Robson wants a considered approach by Australia, saying any new rules must be clear to limit any disruption to businesses operating across borders and don’t result in unintended consequences.

They also aim to stop companies being set up purely to channel investments into tax havens, curbing harmful tax practices and ensuring the fight against double non-taxation does not result in double taxation.

While the new rules don’t explicitly target tech firms, the companies have come in for special scrutiny because they generate significant revenue in many European countries but pay relatively little income tax in them.

The committee formed the view that overseas tax incentives offered to multinational companies are behind aggressive tax minimisation and erosion of Australia’s tax base, and that Australia should work with the OECD to tackle base erosion and profit shifting, but, if need be, be prepared to take unilateral action. “It is a huge, huge response to a big, big problem”. Finance ministers from leading world economies will discuss the plan in Peru on Thursday, and their leaders are expected to finalize it at a G-20 summit next month in Turkey.

“There is enormous ownership, and the feeling of a very great, shared accomplishment”, he said. That could lead to new disputes among countries over how to allocate revenue, and legal wrangling between companies and tax authorities over how much to pay whom.

“We’re seeing the beginning of the end of structures that are deemed artificial”, one of the tech executives said. “There is a known timetable and you have to look at lots of different options about how to do it”. That could largely offset the new revenue, given Amazon’s razor-thin margins.

But over time they became a playground for companies engaged in tax avoidance. Over 59 percent of companies surveyed said they were already implementing changes to their intercompany agreements ahead of the actual implementation of the new OECD rules.

The Organization for Economic Cooperation and Development has released details of a plan to eliminate tax-dodging by multinational companies that has been developed over the last two years. And business groups fear the rules won’t be applied the same everywhere and will unfairly punish a few companies.

Tech companies had initially been a particular focus of the new round of rule-making. Under tax treaties, the profit of a foreign company is usually only taxable in a country if it has a permanent establishment there.

“The process initially seemed like it might go off the rails but thankfully it has not”, one executive said. “It will be much more hard, much more costly and it (profit shifting) will become evasion and no more avoidance”, he added. Those intangibles can in turn be housed practically anywhere, including in a small office in a low-tax jurisdiction. The companies don’t declare external revenue in other countries because they claim various exceptions to the permanent-establishment definition under current tax treaties.

Tax authorities should also be able to challenge the pricing of inter-group transactions – known as transfer pricing – which allow profits to leak out of the countries where they are earned, the OECD said.

Before joining the firm, Ms. Corwin was a deputy assistant secretary for tax policy for worldwide affairs at the U.S. Treasury Department and in that capacity was involved in the launch of the OECD’s overhaul in its early stages.