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Multinational Tax Avoidance Crackdown Goes Far Beyond Apple
Unlike the European Commission’s battle with Apple, the OECD’s clampdown on tax dodging could change the face of corporate taxation
By Stephen Wilmot
Forget Apple’s $14.5 billion spat with the European Commission over historic Irish taxes. An international reform project is targeting up to $240 billion a year it says slips through loopholes between countries’ tax codes—a problem sometimes dubbed “double non-taxation.”
Led by the Organization for Economic Cooperation and Development, the initiative is called “Base Erosion and Profit Shifting,” or BEPS, after the kind of corporate-tax practice it seeks to subdue. Progress isn’t as far advanced as it is on the OECD’s parallel project to clamp down on private-banking tax havens, but it is already showing signs of chivying companies into action.
A set of principles was published last October to which 85 countries have signed up, including all major economies. The OECD is now working on the cumbersome process of implementing the rules.
One tangible example: Roughly 50 governments so far have introduced country-by-country reporting, forcing companies to supply tax authorities with national breakdowns of sales, profits, taxes, employees and assets. Most reports won’t be public, but they will be shared among participating tax authorities, making it easier to spot dubious practices. The U.S. Treasury issued rules that force all U.S. multinationals with revenues above $850 million to file country-by-country returns for financial years starting after June 30.
Some haven’t waited for deadlines. Amazon last year started booking sales through individual European countries rather than through low-tax Luxembourg. In January, Alphabet’s Google, which used to funnel European sales through Ireland and profits through Bermuda, cited BEPS in a £130 million settlement with the U.K. tax authority that involved a pledge to pay more tax in the country.
Others, from auction house Sotheby’s BID -0.03 % to private-equity group Blackstone, have warned investors in annual reports that higher taxes could hit future earnings.
BEPS wants to ensure profits are taxed “where economic activities are carried out and value is created.” The difficulty of pinning down what creates value, particularly for tech companies with few physical assets, suggests corporate taxation will remain controversial even if the use of Caribbean tax havens is stamped out. To the chagrin of some European governments, there was no international consensus in favor of a special taxation regime for the tech sector.
Still, BEPS looks set to change corporate behavior in a way the European Commission’s legal battle with Apple over a now-defunct tax arrangement cannot.