The OECD has made seven proposals for a co-ordinated international approach to combat tax avoidance by multinational companies that will be placed before G20 finance ministers this weekend.
The international group is recommending a single set of international tax rules that all countries would adopt to end artificial shifting of profits to other jurisdictions.
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In the past few years, companies such as Apple, Google and Starbucks have been able to park profits offshore to defer taxes. U.S. legislators are also concerned about tax inversions, in which companies take over a related company in a lower-tax jurisdiction and shift their headquarters so they can pay lower tax.
The OECD proposals, published today, aim to ensure that corporate profits are taxed where economic activities generating the profits are performed, and where value is created.
The G20 finance ministers consider them this weekend, and they will go before G20 leaders in November. The 44 members of the OECD could also adopt them.
Standard reporting form for multinationals
The report proposes a standard country-by-country reporting form for multinationals, which will disclose the activity, employment level, profits and tax paid in each country in which the company does business.
The information would only be disclosed to tax authorities, not to the general public.
It also proposes changes to the practice of transfer pricing – the price a company charges for products moved from one unit to another — particularly for intangibles such as software, patents and royalties. Companies often use inflated transfer pricing to shift costs from one jurisdiction to another.
The OECD makes a couple of recommendations on tax treaties, suggesting changes to bilateral treaties that would prevent companies from avoiding taxes in both countries.
Although there is not yet full agreement on the proposals, it is urging countries to change laws now that enable a company to claim tax relief in two jurisdictions for the same expense and to discourage shopping for tax treaties.
Discourage treaty shopping
Closing these kinds of loopholes in all G20 countries will help countries recoup a fair share of taxes from multinationals, the OECD said.
This is the first seven proposals to be made under an agreement to take action on base erosion and profit shifting. Another eight proposals are expected later this year.