OECD Taking Steps to Fight Corporate Tax Avoidance

By Andrew Fusco,
International Business Editor

One of the major issues that the public and politicians alike have had with large corporations is their knack for finding ways to avoid paying their fair share of taxes any way they can. Well, corporations dodging taxes may soon change greatly as plans to have international tax laws rewritten were released this past Tuesday, September 16.

The Organization for Economic Co-operation and Development announced numerous measures on Tuesday, that would help prevent companies from transferring profits to certain tax havens, if fully implemented.

In a report from The New York Times, Angel Gurria, the secretary general of the OECD said, “Our recommendations constitute the building blocks for an internationally agreed and coordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favorable tax treatment.”

The issue of taxes puts companies such as Google and Amazon, which have been the poster children for this topic, in an odd place. On one hand, they have a responsibility to the government to pay their taxes under the current laws.

But industry analysts maintain that these companies are constantly facing increasing pressures from their competition and shareholders to cut costs any way they can, which includes paying as little corporate tax as possible.

It is widely believed that large U.S. technology companies will feel the brunt of these changes the most, but pharmaceutical and branded consumer goods companies, as well as many European-based companies, will be affected as well, according to a report from Reuters.

While it cannot give the image that it is focusing these new laws specifically on the technology sector, the OECD did acknowledge that the advancements made by e-commerce firms have certainly changed the way the global economic environment operates.

It said in a statement to The New York Times, “Because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes.”
Many strategies used by companies to sidestep their tax bills are, in fact, technically legal. But since the 2008 global financial crisis, leaders in Washington D.C. and other economic capitals have realized that corporate tax schemes are harming the global economy.

This issue has been a huge focus for the Obama Administration, especially with many U.S.-based companies using inversions—the process of buying a smaller, foreign firm and moving the company’s tax residency to the country where that firm is located to avoid paying a large tax bill.

The fact that the OECD is focusing on having companies not avoid taxes is certainly interesting, as for over 50 years their work on international tax has been centered on making sure companies are not taxed twice for the same profits they make.

A version of this article appeared in the Tuesday, Sept. 23 print edition.

Contact Andrew at
andrew.fusco@student.shu.edu

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