Changes to international tax rules will not discriminate against smaller countries such as Ireland with lower tax rates, according to the latest update from the OECD’s working party on Base Erosion and Profit Shifting (BEPS), although there group warned that companies involved in profit shifting should review their tax approach.
In a review of progress so far on the BEPs Action Plan Pascal Saint-Amans, director of the OECD’s centre for tax policy and administration denied the planned reforms had ‘an inherent bias’ against smaller nations.
‘Our aim is to end the division between the location of profits and the location of the real activities which are responsible for those profits. We are not about reducing tax competition. We favour lower rates and broader bases. Our work on BEPS will favour lower tax regimes, because they will now not be competing against artificial zero tax regimes but they will be competing with other countries which have higher rates,’ Saint-Amans said.
In answer to a question about whether the BEPs work is aiming to remove tax planning options such as the ‘double Irish sandwich' whereby a multinational’s profits end up in a tax haven such as Bermuda, Saint-Amans said that ‘it may be wishful thinking but probably that is the end we are expecting'.
Saint-Amans also said that high tech companies, who have come under particular criticism for seeking to shift profits to low or no tax regimes, would be ‘welcome’ to anticipate a change in such circumstances and added that it would be a ‘smart move’ for them to alter their approach.
The BEPs team does not have a ‘hidden agenda’, he added, and made it clear there were no plans to move towards a unitary tax system or a system of re-apportioning tax, both of which options had been considered. He said the ‘arm’s length’ approach would remain the guiding principle, saying ‘the system is working, but with deficiencies which are being addressed'.
‘The risk is that one of the countries could walk away from the consensus we are building, and we are fully aware that what companies need from governments on tax is certainty, so we need to fix the existing system,’ Saint-Amans said.
The BEPS team said they are on track to finalise the Action Plan as scheduled, with Saint-Amans indicating there would be ‘substantive’ news at their next public webcast, although the date for this has not been set.
