OECD eyes rules to curb tax avoidance
The Yomiuri Shimbun
The Organization for Economic Cooperation and Development will establish a comprehensive package of international rules to clamp down on tax saving tactics by multinational companies, The Yomiuri Shimbun learned Tuesday.
The pillar of the package is to halt tax-saving practices like unrealistic lending and borrowing as well as transferring intellectual property rights in transactions within their group companies to gather profits at subsidiaries and other affiliated firms in countries with low corporation tax.
Sources said the OECD will release a final report of the regulatory measures in early October. Afterward, the report will be agreed upon at a summit conference of Group of 20 major countries and territories. About 40 countries belonging to the OECD and G-20 will then begin revising relevant domestic laws based on the report’s recommendations.
According to the OECD, ¥12 trillion to ¥30 trillion in global tax revenue are lost each year through tax-saving measures by multinational companies. The OECD has been studying measures to prevent such practices amid growing criticism over excessive tax-saving efforts by U.S. firms Google Inc. and Starbucks Corp.
Taking advantage of differences in corporation tax rates, firms in higher-tax countries borrow money at high interest rates from relevant firms in lower-tax countries to save on tax payments. Rules will be established to restrict unreasonable interest payments for tax-saving purposes.
Companies that borrow money, on the other hand, can reduce tax payments because their profits decrease after their interest burdens are written off as losses.
Relevant companies in tax havens and other lower-tax countries can increase their profits due to the rise in interest revenue. But low tax rates means tax saving for group companies as a whole. There have been a series of cases in which money is excessively borrowed from relevant companies at high interest rates.
The envisioned rules call for OECD member nations to revise their domestic laws so companies would be unable to write off interest payments as losses if interest payment rates in income exceeds a certain level. The concrete threshold rate will be finalized after further studies. Japan will likely see its current rate lowered significantly.
