Governments’ Race to Address Corporate Profit Shifting Revs Up’
It’s a race against time for governments of the worlds’ largest economies seeking a coordinated plan to make it more difficult for multinational corporations to shield profits overseas. Some countries are preparing to act on their own.
International finance leaders from advanced- and developing- economies are set to gather Wednesday at a Group of 20 international tax symposium in Istanbul, Turkey.
Their discussion is expected to focus on “base erosion and profit shifting” or BEPS, that countries blame for allowing corporations to keep untaxed profits offshore.
The Organization for Economic Cooperation and Development is developing a multilateral plan to encourage cooperation among the world’s largest economies to keep companies from improperly shifting profits offshore. Under its plan, which it may complete by yearend, countries may modify tax treaties and synchronize tax enforcement methods.
But even with that multilateral framework in the offing, some countries are growing more aggressive about chasing their own tax revenues. The United Kingdom moved forward in April with plans for a “diverted profits tax” that would levy a 25% tax on profits shifted abroad. Australian leaders have also expressed a desire to implement similar measures quickly.
“A lot of company CFOs are getting worried that countries will take unilateral measures by themselves,” said Marc Sanders, a partner at tax adviser Taxand in the Netherlands. “That adds to uncertainty,” he said. “If countries implement their own rules it will be very difficult to adjust those rules and create a multilateral approach,” he added.
In February, the OECD Secretary-General told the G-20 finance ministers that “strong political leadership” and “demonstrated commitment at the highest levels of government” were critical components in the organization’s ability to complete its BEPS project.
The symposium this week will address the OECD’s BEPS project. Finance leaders are set to discuss BEPS issues in a digital economy where products float across borders more easily and how to incorporate the perspective of developing countries in the proposed rules, among other issues.
The OECD now is seeking public comment on many of the 15 key areas it aims to address in the project, including how the new framework would affect intangible assets that move across international borders, transfer pricing documentation, and rules for controlled foreign companies.
G-20 finance ministers will meet again in October in Peru, where the OECD expects to present its full BEPS package.