G20 Tax Reform Plans May Close Amazon Loophole
July 20, 2013 | 6:38 pm
The variable tax geometry that has generated so many headlines, consumer complaints and politicians’ soundbites across Europe lately about Amazon could potentially be cut back soon, as the G20 nations line up behind an Organization of Economic Cooperation and Development (OECD) plan that condemns existing international cross-border corporate tax arrangements.
“National tax laws have not kept pace with the globalisation of corporations and the digital economy, leaving gaps that can be exploited by multi-national corporations to artificially reduce their taxes,” states the OECD’s release on its Action Plan on Base Erosion and Profit Shifting (BEPS).
Introduced at the G20 Finance Ministers’ meeting in Moscow, the Action Plan “identifies 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes.”
“This Action Plan, which we will roll out over the coming two years, marks a turning point in the history of international tax co-operation. It will allow countries to draw up the co-ordinated, comprehensive and transparent standards they need to prevent BEPS,” said OECD Secretary-General Angel Gurría.
The report specifically singled out the practice used by Amazon where a holding entity—in this case, Amazon in Luxembourg—licenses intellectual property or technology to other subsidiaries, resulting in the beautifully named “double non-taxation.”
“International tax rules, many of them dating from the 1920s, ensure that businesses don’t pay taxes in two countries—double taxation,” continued Gurría. “This is laudable, but unfortunately these rules are now being abused to permit double non-taxation. The Action Plan aims to remedy this, so multinationals also pay their fair share of taxes.”
U.S. readers familiar with the American practice of dividing taxation of corporate profits among states via agreed formulae won’t see such a system used internationally—the OECD concluded it was too complex to operate on a global scale.
More from the OECD announcement:
“The Action Plan recognises the importance of addressing the digital economy, which offers a borderless world of products and services that too often do not fall within the tax regime of any specific country, leaving loopholes that allow profits to go untaxed. Requiring taxpayers to report their aggressive tax planning arrangements and rules about transfer pricing documentation, breaking-down the information on a country-by-country basis, will help governments identify risk areas and focus their audit strategies. And making dispute resolution mechanisms more effective will provide businesses with greater certainty and predictability. The actions outlined in the plan will be delivered in the coming 18 to 24 months by the joint OECD/G20 BEPS Project, which involves all OECD members and G20 countries on an equal footing.”
Amazon’s tax holiday appears to be drawing to a close: sooner, perhaps, than anyone expected.