Tax Practices Of Tech Giants Attacked By OECD Official

The tax arrangements of tech giants such as Amazon, Google, Facebook, Apple and others has been challenged by a leading official at the Organisation for Economic Co-operation and Development (OECD).

The OECD is the France-based organisation made of 34 countries that aims to stimulate economic progress and world trade. It has been tasked with creating a new set of tax rules designed to stop companies that operate in G20 countries from shifting their profits to tax havens, such as Luxembourg, Bermuda, Jersey or Ireland.

Tax Reforms

It was back in 2013 when the OECD was charged is drawing up plans designed to eliminate tax avoidance by big tech businesses. Pascal Saint-Amans runs the OECD’s Centre for Tax Policy, and he is the man charged with reforming global tax rules.

Speaking to the BBC, he said technology companies are pushing “the boundaries of what is legal,” and they should stop using tax havens to shelter their profits.

Saint-Amans said the OECD is developing new standards that would require tech giants to pay more tax in the countries where they sell goods or generate revenues. He believes there should be international agreement on new tax laws by the time of the G20 summit of global leaders in November this year.

The implementation phase of these new tax reforms should mean the rules are in place “well before” 2020. Companies will be required to publish, country-by-country, how much they pay in tax.

It is worth noting at this stage the UK is ahead of the curve here, as it has already implemented changes to its tax laws to force tech giants to pay more tax to the UK Treasury. Britain’s new rules on the taxation of multi-nationals is called the “diverted profits tax”, but Saint-Amans told the BBC that the UK laws will need to be be “co-ordinated” with the OECD agreements.

Aggressive, But Legal

Saint-Amans also told the BBC that he is in no doubt that technology giants have engaged in some sharp practices regarding tax.

“Most of these companies have been extremely aggressive, pushing the boundaries of what is legal,” he told the BBC. “They have tried schemes that cannot resist further examination by tax administrations.”

“My advice would be instead of focusing on tax planning, please do the wonderful job you are doing on innovation and be much more conservative on tax planning,” he was quoted as saying. “They have been extremely aggressive and that may have sounded unfair to the audience – that you have giants making billions in profits and not paying taxes where they operate.”

The tech giants themselves have always maintained they follow all the tax laws of the respective countries they operate in.

And Saint-Amans admitted that whilst their practices were aggressive, ultimately it is the fault of governments around the world for not adjusting their national taxation systems to deal with the modern economic realities.

Saint-Amans was asked by the BBC whether the problem has actually been created by the policymakers rather than the companies themselves.

“You are 100% right,” he replied. “The blame should be put on governments which have over the past 20 years let the rules shift away from what should have been achieved.

“We didn’t update the rules. We unfortunately needed a crisis to have this wake-up call to say we need to change because it is outdated,” he added. “”Now, governments have decided to move. It shows that when you have political support you can achieve technical changes.”

Tax Avoidance?

Campaigners have long argued that whilst multi-nationals generate large sums of revenue in countries like the UK, Germany, France etc, the intellectual property (the profitable bit) is actually based elsewhere, often the US. And often the “sales” are actually assigned to a more favourable tax location such as Ireland or Luxembourg.

For example, in 2011 Google posted a record £2.5bn of sales in the UK and a group-wide profit margin of 33 percent. But the search engine giant’s main UK unit only paid £3.4m in tax. In 2012 it was revealed that Apple paid just two percent in corporation tax outside the US, and it was suggested that Facebook paid tax on just 11 percent of its estimated sales in the UK.

“[We will be asking multi-nationals] where is your turnover, where are your profits, where are your employees, where do you pay your taxes?” said Saint-Amans. “This information will be collected by all the countries – that is a game changer.”

Last summer, the European Commission said it had opened three in-depth investigations to examine the decisions by tax authorities in Ireland, the Netherlands and Luxembourg. They want to investigate the corporate income tax arrangements paid by Apple, Starbucks, and Fiat Finance and Trade, to see whether they comply with the EU rules on state aid.

In 2013, a US Senate committee accused Ireland of giving special tax treatment to Apple and others. Senator Carl Levin, chairman of the subcommittee, dubbed the Apple structure “the Holy Grail of tax avoidance.”

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