The OECD has published new proposals which seek to deal with the problem of profit shifting by multinational companies.
The proposals set out principles on how large multinational companies should be taxed in the future. At the core of the proposals is a new approach to how the profit of companies should be allocated to different countries in which they operate.
These proposals are a starting point. There will now be a period of negotiation with the OECD seeking to get agreement early next year.
As highlighted in research by TaxWatch, the current system allows multinational companies to easily shift profit out of the countries which they operate and into tax havens where no real economic activities take place.
Our research found that just five companies dodged £1bn a year in UK corporation tax through profit shifting between 2012-2017.
The proposals from the OECD would redistribute just a fraction of that profit back to the UK.
Commenting, TaxWatch director George Turner said:
“The proposals from the OECD move away from the absurd system where a multinational company is treated as if it is a network of independently trading companies. That is a good thing.
“However, the proposals set out yesterday are limited in scope and analysis has shown that they will only redistribute a small amount of the profit multinationals currently shift offshore.
“The fact of the matter is that the UK government could immediately tackle the issue of profit shifting by tech companies if it wanted to. All it needs to do is to change existing legislation which exempts tax havens like Ireland, Switzerland and the Bahamas from income tax on royalties. TaxWatch has estimated that such a move would allow the UK to raise an extra £8bn in taxes a year.
“With consultation on the plans now open, there is still a lot to play for and it is important that civil society and other groups engage with the process in order make the argument for a system that ensures that governments see a real benefit from the profits made by multinationals in their jurisdiction.”