fb-pixelNations back plan to deter corporate tax manipulation - The Boston Globe Skip to main content

Nations back plan to deter corporate tax manipulation

NEW YORK — Dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent corporations from gaming the international tax system, the Organization for Economic Cooperation and Development reported Tuesday.

In a set of recommendations, the organization said the nations — including the United States, China, and the biggest countries in Europe — had agreed on actions to ensure “the coherence of corporate income taxation at the international level” and to improve transparency.

“Our recommendations constitute the building blocks for an internationally agreed and coordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favorable tax treatment,” Angel Gurría, the organization’s secretary-general, said in a statement.

Advertisement



To lower their tax bills, multinational corporations move profits from high-tax to low-tax jurisdictions through subsidiaries and offshore companies using complex transactions, including internal payments for interest, royalties, patents, and fees.

Such strategies are usually legal, but since the beginning of the financial crisis there has been a clear recognition that corporate tax planning is distorting the world economy. Furthermore, rules governing global tax affairs, created in the 1920s, can seem out of touch when companies are able to move millions or billions of dollars of profit from one country to another with the click of a button.

The OECD acknowledged that the rise of Internet commerce has greatly changed the global playing field but stopped short of calling for rules specific to e-commerce.

“Because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes,” it said.

Sol Picciotto, emeritus professor at Lancaster University in Britain, said the recommendations were at least five to 10 years from becoming law, and that the jury was out on whether they would accomplish their stated goals.

Advertisement



“These are just tweaks,” said Picciotto. “They’re trying to repair an old motorcar, but what they need is a new engine.”

The problem, he said, is that “companies are very wary of any shift to a new system.” But, he said, “tax professionals are aware that the system is broken. It has to change.”