Europe throws weight behind OECD tax avoidance curbs

THE PRESIDENTS of the European Council and Commission have emphatically endorsed the OECD’s proposals to tackle tax avoidance in a letter to the EU’s 28 heads of state.

A 15-point action plan produced at the request of the G8 was presented at the group’s summit in Moscow earlier this month, identifying measures necessary to tackle tax base erosion and profit-shifting.

In particular, it attempts to address the digital economy, which offers a borderless world of products and services that too often fall outside the tax regime of any specific country, leaving loopholes that allow profits to go untaxed.

Companies including Google, Amazon and Starbucks have been in the firing line for their use of offshore jurisdictions to drive down their UK tax liabilities.

In particular, the companies have been using transfer pricing, which some claim has the effect of mitigating their liabilities. The method sees multinational corporations value and purchase goods and services moving across international borders from one of the group’s corporate entities to another. An ‘arm’s length’ principle is usually applied to ensure the transaction is made at market value, but there have been questions raised over whether all companies do so in practice.

In a joint letter, José Barroso and Herman van Rompuy endorsed the OECD’s proposals and called on the G20 to commit to a programme against tax avoidance and evasion when it next meets in September.

They wrote: “We also fully support the OECD’s action plan on base erosion and profit shifting. This plan identifies actions needed for countries to prevent base erosion and profit shifting which is the right approach to curbing corporate tax avoidance worldwide.

“It fully supports our common objective to ensure that everyone pays their fair share of tax – whether large multinational or small corner shop – and that taxation reflects where economic activity takes place.”