Tax Rules Around World Need Urgent Update

February 13, 2013 International Tax Cooperation

Tax avoidancePARIS – The OECD is warning governments around the world that they have not kept pace with the modern business environment and are now losing out on significant amounts of tax revenues as multinational companies shift their profits overseas.

According to a report released by the Organization of Economic Cooperation and Development (OECD) on February 12th, outdated tax rules and antiquated tax systems around the world allow multinational corporations, in some cases, to pay as little as 5 percent tax on their overall global profits, while business which have not expanded overseas and are still operating exclusively in their country of registration are paying as much as 30 percent tax on their incomes.

The OECD claims that large multinational corporations today are able to use their significant resource bases to take advantage of oversights in national tax codes and shortcomings in current transfer pricing protocols to shift their profits to low tax jurisdictions, eroding tax bases and “raising serious compliance and fairness issues”.

In the newly published report the OECD explained that the current gaps in tax rules exist because governments have not been able to update their tax laws in line with the modern business environment or with current developments in modern business technology.

As a means to address the growing international problem of the erosion of tax bases, the OECD called on governments to act immediately to undertake a thorough and cooperative overhaul of their own tax codes in order to minimize the possibility for profit shifting.

The OECD also added that in the next few months it will release a new report which will contain quantifiable evidence of profit shifting, and will also provide governments with timelines and recommendations to rectify the problem of erosion of tax bases.

Photo by 401(K) 2013