Multinationals face new rules on aggressive tax avoidance

OECD plan to make practice of shifting locations ineffective

New rules aimed at preventing the type of aggressive tax avoidance schemes run by some of the largest multinational employers here will begin to be introduced in September, according to a draft report seen by The Irish Times .

Structures that artificially shift profits to locations where they are taxed at more favourable rates, or not taxed at all, are to be “rendered ineffective”, the draft report by the Organisation for Economic Co-Operation and Development says.

The report, The Tax Challenges of the Digital Economy , is being sent to interested parties for their views prior to a final set of recommendations being issued, and is part of a wider OECD project aimed at combating legal but overly aggressive tax avoidance by multinationals generally. A key objective will be to make taxation more aligned with where economic activity takes place.

Companies such as Apple, Google and Microsoft have operations here that are the contracting party for sales across Europe and further afield.


'Digital presence'
However, the report suggests ompanies that sell across the internet could be said to have a "digital presence" in their major markets, and so could be taxed by those jurisdictions on income from business currently treated as if it were being conducted in Dublin.

The report says measures to be announced in September will address the issue of companies abusing tax treaties so as to avoid tax. A year later, measures will be announced to make it easier to tax companies in the markets where they make their sales, as against where they are headquartered.

The OECD is also examining the way governments facilitate the sheltering of income from patents, and says it is going to prevent companies shifting royalties to tax havens.

Most major technology companies with headquarter operations here make massive royalty payments to subsidiaries in tax havens, reducing their Irish profits and the amount of Irish corporation tax they pay.Chartered Accountants Ireland said the OECD proposals will benefit only large countries with large markets.

"These proposals, which are a key element of a larger project to revise the way multinational companies are taxed, would fundamentally change the business model for companies based in Ireland," said the organisation's tax director, Brian Keegan.

“It is vitally important for Irish business to point out the flaws in the OECD reasoning,” he said. “We need the commercial point of view to be fed into these proposals, before they become concrete to the detriment of Irish business and Irish taxpayers generally.”

Colm Keena

Colm Keena

Colm Keena is an Irish Times journalist. He was previously legal-affairs correspondent and public-affairs correspondent