AS per
a latest OECD Study, global solutions are needed to ensure that tax systems do
not unduly favour multinational enterprises, leaving citizens and small
businesses with bigger tax bills.
An OECD study commissioned by the G-20
- Addressing Base Erosion and Profit Shifting (BEPS) - finds that some
multinationals use strategies that allow them to pay as little as 5% in
corporate taxes when smaller businesses are paying up to 30%. OECD research also
shows that some small jurisdictions act as conduits, receiving
disproportionately large amounts of Foreign Direct Investment compared to large
industrialised countries and investing disproportionately large amounts in major
developed and emerging economies.
Many of the existing rules which
protect multinational corporations from paying double taxation too often allow
them to pay no taxes at all. These rules do not properly reflect today’s
economic integration across borders, the value of intellectual property or new
communications technologies. These gaps, which enable multinationals to
eliminate or reduce their taxation on income, give them an unfair competitive
advantage over smaller businesses. They hurt investment, growth and employment
and can leave average citizens footing a larger chunk of the tax bill.
The practices multinational enterprises use to reduce their tax
liabilities have become more aggressive over the past decade. Some, based in
high-tax regimes, create numerous off-shore subsidiaries or shell-companies,
each time taking advantage of the tax breaks allowed in that jurisdiction. They
also claim expenses and losses in high-tax countries and declare profits in
jurisdictions with a low or no tax rate.
The report “Addressing Base
Erosion and Profit Shifting” does not suggest optimal tax rates - each
government decides its own. In the coming months, OECD will draw up an Action
Plan, developed in co-operation with governments and the business community,
which will further quantify the corporate taxes lost and provide concrete
timelines and methodologies for solutions to reinforce the integrity of the
global tax system.
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