G20 should aim tax avoidance rules at the banks & super-rich

The latest OECD draft rules to regulate massive corporate tax avoidance are a real advance so long as the 44 countries concerned (90% of the world’s economy) stick to their resolve, push these measures through and resist the enormous lobbying that they can expect from a determined corporate push-back. But the past record on that is not good, and in particular Osborne is already threatening to break ranks in a manner totally discordant with all the other participants.

The new regulations should at last stop companies exploiting differences between tax regimes to achieve artificial tax avoidance on an industrial scale via what are called hybrid mismatch structures. Other draft rules will require multinationals to give tax authorities a country-by-country detailed breakdown of their activities and earnings, so that they will no longer be able to carry out their operations in high-tax countries but then artificially register their profits for tax in low or virtually no tax countries.

Another important step lays out new standards designed to end the abuse of tax treaties through treaty ‘shopping’. This will force multinationals to disband ‘letter-box’ companies that are used to route profits through countries such as the Netherlands and Luxemburg to take advantage of favourable tax treaties. That will target in particular the US tech companies like Microsoft, Apple, Facebook, Amazon and Google which have often developed tax structures to deprive EU countries of all but a fraction of their due tax liabilities. This may well however turn into a bitter clash between the US and EU countries at government level.

Whilst Osborne likes to say that he’s finally participating in the international effort to get a grip on tax-dodging multinationals, he is also himself deliberately opening the door to a flagrant example of a tax-dodging loophole. Whilst the OECD draft rules are intended to make it harder for multinationals to transfer parts of their intellectual property rights to low-tax jurisdictions at modest cost, Osborne has angered other countries by his selfish promotion of ‘patent box’ tax incentives. He’s offering these tax breaks to businesses that bring with them lucrative intellectual property profits, on the grounds that this encourages high-tech R&D. Other countries however argue, rightly, that it opens up a loophole which it’s too easy for overseas R&D firms to exploit.

But these OECD draft measures still go only half way. They still need to be extended to hunt down the other half of the estimated £21 trillions (equal to a third of world GDP) secreted offshore in tax havens by the ultra rich fraction of the richest 1%, together with the miscreant banks and their army of tax-dodging lawyers and tax accountant who devise ever more arcane devices to defeat tax justice for the world’s other 99.9999….%.