G20 Countries Plan To Change Tax Rules In The Next Two Years

A draft plan from OECD will attempt to solve the issue of tax havens

The Organisation for Economic Co-operation and Development (OECD) is drawing up plans designed to eliminate tax avoidance by big tech businesses, due to go into force in one to two years.

According to Reuters, the draft plan drawn up on behalf of the 20 major economies targets a range of loopholes in tax regulation used by companies like Apple, Google, eBay and Amazon to minimise their corporate tax bill.

Rapid response

The OECD is an organisation of 34 countries founded in 1961 to stimulate economic progress and world trade. This year, it was tasked with creating a new set of rules designed to stop companies which are doing business in G20 countries from shifting their profits to tax havens, such as Luxembourg, Bermuda, Jersey or Ireland.

 Tax evasion (c) Cartoonresource, Shutterstock 2013The changes will be implemented in response to political and public pressure after it emerged that several well-known tech companies were paying very little tax on huge profits, both in Europe and the US. For example, in 2012, Google’s tax bill in the UK stood at just £6 million on revenues of around £395 million, with some MPs describing the company’s tax practices as “immoral”.

The tax issue is especially important considering the impact of the credit crisis and large budget deficits across much of the world. It is important to note that the businesses accused of tax avoidance are  not actually breaking the law, just trying to minimise their expenses using rules that were devised for the  pre-Internet economy.

The draft plan developed by OECD will be discussed at a G20 meeting in July. It is expected to force companies to pay tax in the countries where they have “major activities” and conduct sales. The draft will also look into “specific activity exemptions”, which allow businesses to sell products without creating tax residences in particular countries.

Additionally, the OECD could change the rules on taxation of R&D entities and units that were created to manage financial risk. According to the US Senate investigation conducted in 2012, Microsoft is one of the companies that uses its research division to avoid some of its tax.

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