OECD Targets and Proposes measures against Companies Tax Avoidance

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iStock_000025524007Small-pic510-510×340-30573The OECD is a government-funded think tank that was charged by the G-20 to tackle the issue. Tax planning strategies used by companies as Google Inc. (GOOG), Apple Inc. (AAPL) and Yahoo! Inc. (YHOO) and other similar companies are in the Organization’s for Economic Cooperation and Development (OECD) sights for the extensive measures they inherit to avoid paying tax. The time schedule implemented by the OECD to propose and develop strategies, is approximately two years. The OECD’s aim is to prevent corporations from engaging in the burden of tax avoidance via patent rights into shell companies. A popular method used by corporations is by taking interest deductions in one country – which ultimately gives them the benefit not having to report profits in another. The German Finance Minister Wolfgang Schaeuble called the OECD’s plan a ‘major step.’ His comments also extended to supporting the move by calling companies to pay their taxes as without ‘fair burden sharing, in the end we will destroy even a global, open economy.’ In support of the OECD’s move, they have produced a 40 page report which discloses details as to how a government benefits from the proceeds of companies and how the avoidance of billions give benefit to the tax regimes of countries like Bermuda and the Cayman Islands. In addition to the OECD move, noticeable actions from the governments of the U.S. and U.K. against Google, Amazon, Apple and Starbuks have been examined for their actions they take against tax planning. Even though these companies stress that all their moves of funds are legal and within interest to their shareholders to minimize tax liabilities. More details on the seriousness of the matter were expressed by French Finance Minister Pierre Moscovici. He raised concerns that unprecedented world tax planning specialized from large organizations is a complex situation which cannot be explained to fellow citizens. Another major concern is that when these companies started off – the funds raised from the originating country are not transferred back – as intellectual property rights allow the shift of profits to countries as Bermuda. The OECD proposes to make it harder for corporations to be allowed to shift profits in forms of patent rights to offshore units as there is no real activity happening in these corresponding countries however, monies are stationed there. The director of the Center for Tax Policy and Administration for the Paris-based OECD, Pascal Saint-Amans characterized it as wrong and supported the fact that it does need fixing. Stephen E. Shay, former Deputy Assistant Secretary for international-tax affairs at the U.S. Treasury Department under President Barack Obama also supports the OECD’ s decision but has expressed a few concerns as to how all countries will be willing to propose these measures. The OECD can propose moves but does not have real powers to force countries to compel with these decisions. In support of the moves raised by the OECD – this has finally given the opportunity for an update to the 80 year old tax system. This can be viewed as a barrier for implementation of new rules from supporting governments. Finally, previous recommendations from the European Union could be taken in consideration. The European Union in 2004, recommended that sales of corporations should be allocated to the corresponding country and collected in accordance to the country’s tax regime – even though first thought as impossible to implement due to its density.