Colm Keena: Wind of change blowing for multinational tax avoiders

You don’t need a weatherman to know which way the wind is blowing in relation to the taxation of multinationals.

Whether it's Margaret Hodge in Westminster telling Matt Brittin of Google that his company's tax policies are "devious, calculated and unethical", Sen Carl Levin in Washington DC talking about Apple discovering the "holy grail" of tax avoidance, or Michael Noonan in his Budget speech announcing another measure to reduce Ireland's role in aggressive tax planning, there is no mistaking the fact that politicians have spotted a hot topic.

Even U2 can’t play a few songs at Glastonbury without protesters drawing attention to the band’s tax affairs.

For the past two years or more, whenever the need for action has popped up on the global political agenda, the world’s most powerful political leaders have been able to say the Organisation for Economic Co-operation and Development (OECD) is drafting new rules by way of its Base Erosion and Profit Shifting (Beps) project, and that change is coming soon. As of yesterday, change is a step closer.

Last year this reporter paid a visit to the Paris headquarters of the OECD , when a discussion was being held on one of the Beps so-called “action points”. The debate was about whether special measures should be introduced to enable the better taxation of digital companies. The eventual decision was that any new plan should be able to accommodate the digital economy, rather than specially provide for it, given its size.

But in many ways the most interesting aspect of the meeting was not what was discussed, but rather who was there. The meeting was co-chaired by two civil servants, one from the US and one from France, and the attendance included business representative groups, a public affairs director for Google, specialist lawyers from Silicon Valley, civil servants from India and China, representatives of NGOs who wanted to bat for poorer countries, and representatives of the Big Four accountancy firms.

Hot political topic

Much like the Beps process itself, one of the most notable aspects of the meeting was the fact it was happening at all.

Because government revenues around the world are under so much pressure, and the modern world is so connected, and brands such as Facebook and Twitter are so much a part of people's lives no matter where they live, the amount of tax multinationals pay, or don't pay, has become a hot political topic everywhere. The extraordinary response to the Luxleaks reports last year was another illustration of this.

A global problem of this scale requires a global response. Not just because it can’t be fixed otherwise, but also because without a collective response individual governments will respond by announcing unilateral measures, such as the so-called diverted profits tax announced some time ago by the UK, thereby disrupting global trade. That is in no one’s interest.

Furthermore, for the multinationals, the reputational damage that can come from coverage of their tax strategies may translate into serious commercial risks, while for governments, trust in their tax systems is a public good they need to protect.

Lastly, organisations campaigning on behalf of the developing world, such as Christian Aid and Oxfam, have recognised that the type of financial flows created by aggressive multinational tax planning – the tax base erosion the OECD project's title refers to – could be as important an issue for poorer countries as the aid that flows in the other direction. So the topic is not going to go away.

The measures contained in the Beps report are agreed measures at the technical level and will most likely receive political approval at the G20 level later this year. The focus now moves on to implementation. It will not be easy. The US and the EU, for instance, do not see eye to eye on what needs to be done in relation to all 15 "action points" in the plan, and political deadlock in the US continues to hold back the reform of the corporation tax regime there. But it is hard to imagine the process coming to a halt, not least because global business needs certainty.

Ireland’s response

As the focus shifts towards implementation,

Ireland

will have to act wisely, observing which way the wind is blowing, measuring its response, and all the while seeking to preserve the benefits of its vital foreign direct investment sector. To date, it must be said, the Government has played a bit of a blinder, with the early move on the so-called double Irish tax structure managing to leave the structure in place until 2020, while also scoring an early global public relations win.

Just like global warming and its consequences, the refugee crisis, social media, and the multinationals themselves, Beps is another example of the way nations and regions have become interconnected in ways they never were before. Up to now domestic taxation has been the stuff of political controversy, while international taxation was the preserve of experts and the owners of anoraks. That no longer holds.

So will the Beps proposals lead to more of the $100 billion-$240 billion the OECD estimates is being lost to exchequers each year being collected and used to build schools, hospitals and flood defences? Almost definitely.

The question is more, how much of the money will be collected? We can’t know the answer to that, but we can be pretty sure the question is one that will be frequently asked by politicians, NGOs and the media over the coming years.