Will the OECD’s tax plan have an effect?

The G20 has given support to a plan against tax avoidance put forward by the Organisation for Economic Co-operation and Development (OECD).

OECD published a 40 page report on how companies like Amazon, Google and Apple can be stopped from avoiding tax. Among the suggestions it put forward is to crack down on transfer pricing, which is where companies move their assets to tax havens in a bid to maximise revenue.

European council president Herman Van Rompuy and European Commission president Jose Manuel Barroso welcomed the OECD’s recommendations in a joint letter, stating: “This plan identifies actions needed for countries to prevent base erosion and profit shifting which is the right approach to curbing corporate tax avoidance worldwide.”

But will this really make a difference within the UK? Without strengthening the body responsible for tackling tax avoidance, HM Revenue and Customs, probably not.

The House of Lords Select Committee on Economic Affairs has called for more funding to be issued to HMRC to help it tackle multinational companies, like Amazon and Google.

Earlier this year, MPs raised concerns that staff at HMRC who dealt with tax avoidance were vastly outnumbered by people in the big four accountancy firms KPMG, PwC, Deloitte and Ernst and Young. With multinational companies turning to these for advice, HMRC’s ability to tackle their tax avoidance came into question.

Indeed, the committee said that the OECD’s global tax reforms may not be able to stop multinational companies from avoiding tax.

It also pointed out how some UK businesses could be put at a competitive disadvantage to their global counterparts as they must face tough UK tax laws where the latter can avoid them.

In its report titled Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? the committee explained: “There is no level playing field between, say, a UK-based retailer which has to pay corporation tax in this country and a global rival selling here but paying corporation tax somewhere else at a lower rate.”

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