Controversy brewing: Starbucks is one of many big corporations who have been criticised for their tax avoidance. Photo: Reuters
OECD tax director Pascal Saint-Amans has played down concerns the US may resist plans to make multi-national companies such as Apple and Starbucks pay more tax, arguing governments must move quickly to close multi-billion dollar loopholes or risk ordinary citizens losing faith in their taxation systems.
Mr Saint-Amans told Fairfax Media one of the main reasons G20 nations backed the OECD's blueprint to reduce excessive corporate tax avoidance - known as the Base Erosion and Profit Shifting action or "BEPS" plan - was not to "raise revenue" from the likes of Google and Facebook but to create a "level playing field".
Speaking less than a month after the G20 governments offered their "full support" for the BEPS plan at a meeting in Sydney, Mr Saint-Amans he was "not surprised" by a Fairfax investigation last week that revealed US tech giant Apple shifted almost $9 billion in profits from its Australian operations to a tax haven structure in Ireland over the past 10 years.
But he said "mismatches" and "gaps" in global tax rules allowing big corporations to shift revenue between different jurisdictions "were not right" at a time when the tax contribution of individuals and small businesses had grown.
"The real driver [to change tax rules for multinational corporations] is not 'they are profitable so let's make money out of them'," he said. "At the same time an Australian person in Queensland or New South Wales will look at this and say 'I pay taxes, more taxes yet Apple doesn't pay anything and they have stashed $100 billion in Bermuda and they have not paid taxes in Australia on that profit and they have not paid taxes in the US on that profit'.
"It's just wrong. And if you don't address it you have political issues. And if you don't address those political issues you undermine the compliance and the confidence in the that tax system by the taxpayers."
The BEPS plan aims to reduce legal tax avoidance such as "Double Irish Dutch Sandwich" structure that allows royalty payments for the use of intellectual property to be sent to a company that operates in Ireland but has its headquarters in a tax haven. Big US tech companies such as Apple, Google, Facebook and Amazon are of particular interest to the OECD because tech companies are less reliant on physical locations and have valuable intangible assets such as brands and intellectual property that can be located in tax-havens such as Bermuda. This means that profits are rarely taxed at the country where the customer is located (the source) or where the product originated (the residence). "Our rules have been so good at eliminating double taxation that may have facilitated double non-taxation," Mr Saint-Amans said.
The BEPS process has backed away from specific rules for tech companies and is instead pushing ahead with a 15-point blueprint aimed at all multinationals but does start with the need to "address the challenges of the digital economy". Mr Saint-Amans is sticking to what he describes as a "crazy" two-year deadline to finalise BEPS.
"The current rules legally facilitates the location of the profit in non-tax jurisdictions. In other words you can develop schemes that can put your intangibles in Singapore or Switzerland or Luxembourg while there is no activity there. You can deduct your expenses in Australia.
"You can put your intangibles in Singapore – where it is not taxed. You can lend money to your subsidiaries across the world so that you can erase profit in all these countries because there is excessive interest then you locate a treasury centre in Ireland for there is no tax either. At the end of the day there no tax anywhere."
The lack of tax paid by the big tech companies has become a political issue in many companies including the US. One of the reasons the OECD has adopted a tight timetable for BEPS is to prevent individual countries taking matters into their own hands. Mr Pascal Saint-Amans said only co-ordinated action will prevent loopholes. British Prime Minister David Cameron last year criticised foreign companies for not paying enough tax in the UK, vowing tougher measures on multi-nationals that lacked "moral scruples". Italy dropped plans for a "Google tax" in February.
Some members of the G20 are concerned that the US will not support BEPS given the focus on American companies. It was a concern expressed by some French officials that spoke to Fairfax Media on the condition of anonymity. However, Mr Saint-Amans argued that there was bipartisan support for BEPS.
"The US is split," he said. "On the one hand, BEPS might sound like an anti-US business project because the companies you find in the press are US companies. And of course if you are Obama you can be legitimately concerned about the rest of the world ganging up against your own companies.
"But on the other hand the US is concerned it is not collecting a penny of tax on all this. You have – and this is a public figure - $US2 trillion ($2.22 trillion) of accumulated profit by US companies offshore. Apple is $US100 billion...So the US government is concerned about BEPS."
Mr Saint-Amans said President Barack Obama and David Camp, the Republican chairman of the House Ways and Means Committee, have in recent weeks both tabled measures aimed at getting multinational corporations to pay more tax from overseas profits.
But while the BIAC business lobby tied to the OECD had taken a "moderate" approach, he does concede some "very viscous" lobbying against BEPS is taking place from parties he declined to name.
The OECD's website has letters from multinational companies such as UK drinks mater Diageo and Russian energy group Gazprom questioning the BEPS plan and claiming the action plan could hurt investment. The US National Foreign Trade Council, which represents over 300 companies including General Electric and Google, has questioned the "premise that the profits of a multinational enterprise ought to be allocated across jurisdictions in proportion to employees or tangible assets".
Other business groups such as Britain's Confederation of British Industry, the United States Council for International Business and French employers' body Medef have expressed concerns that corporations would face unreasonable administrative burdens and risk confidential commercial information leaking.
The reporter travelled to Paris as a guest of the French government.