Global Tax: The Rules Are About to Change

Global Tax: The Rules Are About to Change

Corporate tax avoidance has blighted many of the world’s nations as of late and a new agreement put in place by the Organisation for Economic Co-operation and Development (OECD) aims at stopping large multi-national firms taking advantage of tax loop holes by shifting their profits from one country to another.bigstock-Starbucks-Coffee-Shop-Sign-60690266

Firms such as Google, Amazon and Starbucks have been accused of such strategies in both Europe and America although all have been, strictly speaking, operating within the law.

According to the OECD, 44 countries which make up 90% of the world’s economy favour the plans it has proposed which will see a country-by-country model that would require firms to declare their revenue, profit, staffing and tax paid in each jurisdiction. Under the current system, firms can manipulate agreements intended to avoid double taxation of profits to their advantage by using them to obtain double tax deductions instead. It is also possible to use internal billing procedures to ensure that profits are registered in countries where corporate tax levels are lower than where the profits were actually generated from as such Google declares a loss in Britain whilst funnelling profits through Ireland and Starbucks does the same with The Netherlands.

Pascal Saint-Amans, the OECD’s head of tax, announced the proposals in Paris by saying that these new rules would “change the rules of the game” by making sure companies paid taxes in the country where profits were generated.

The measures were put to finance ministers at the G20 meeting in Australia with steps agreed upon to move towards these policies.

Of the changes, Richard Collier, tax partner at PwC said:

“The scale and scope of change surpasses what many people had anticipated at the outset. The big worry for businesses is that different tax authorities will require different information, which could add to the administrative and cost burden for businesses.”

With Anton Hume, at accountants BDO, adding: “It may mean that a lot of activities are on shored again.”

These measures could come of great economic benefit to many countries across the globe but could also see companies take a larger hit from their profits.

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