OECD tax boss Pascal Saint-Amans forecasts company tax rates will fall as multinational rorts are stamped out

Wednesday, 7 October 2015

The Frenchman spearheading the OECD's unprecedented global crackdown on multinational tax rorts expects success will result in lower rates of company tax, benefiting smaller firms.

The Organisation for Economic Cooperation and Development (OECD) finalised recommendations on Tuesday aimed at preventing an estimated US$100 billion to $240b of corporation tax earned by the likes of Google, Apple and Facebook slipping through tax departments' fingers each year.

The publication of the OECD's recommendations, which PwC New Zealand tax partner Geof Nightingale labelled an 'amazing achievement', marks the culmination of a two-year drive by major economies to bring about the biggest change in international tax law for nearly a century.

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Former Google chief executive Eric Schmidt infamously defended the accounting tricks that had allowed it to funnel billions of dollars of profits to Bermuda each year to the British media in 2012, saying it was 'called capitalism'.

But speaking to stuff from Paris, ahead of a trip to Lima in Peru where he will present the OECD's recommendations to a meeting of G20 finance ministers on Thursday, OECD tax policy director Pascal Saint-Amans denied the crackdown represented a crusade by 'high-tax countries' to defend their ways of life against Silicon Valley's libertarianism.

'I think this has been a bipartisan project from both right-wing conservative people thinking 'small government is good', to indeed the left wing,' he said.

Saint-Amans believed the effort to stamp out 'non-taxation' was likely to be followed by many countries reducing their rates of corporation tax.

That meant tax departments would not become US$100b-$240 better off as a result of the OECD's work.

But it would mean a 'positive spillover for small and medium-sized enterprises which will see their tax burden reduce because they will now share it with multinationals', he said.

'Today, you have the choice of paying 40 per cent tax in the US, 12.5 per cent in Ireland or 0 per cent in Bermuda. Well, you just pick up the right tax lawyer and you get zero in Bermuda. That will change. These types of schemes are over and then you are back to fairer tax competition between countries.'

The OECD's highly technical recommendations to address tax 'base erosion and profit shifting' (Beps) will still need to be implemented by member states.

New Zealand Revenue Minister Todd McClay said he expected to introduce the necessary legislation in New Zealand before the end of next year after what he promised would be extensive consultations.

McClay said people were 'always going to look for holes' but he was optimistic the rule changes would have their desired effect, which is to prevent multinationals exploiting differences between country's tax laws to avoid paying tax anywhere.

Both McClay and Nightingale said the OECD had delivered its mammoth package of reforms more quickly than almost anyone expected.

Saint-Amans said multinationals had been lobbying behind the scenes, noting the OECD received '12,000 pages worth of comments' prior to finalising its proposals on Tuesday.

'On 'the Hill' in the US there are a number of people advocating for de-funding the OECD which is a pretty strong lobbying exercise,' he said.

But the pace of progress does seem to have caught critics somewhat on the hop. 'It is true [the lobbying] came a bit late because most people were sceptical anything would happen,' Saint-Amans said. 'Many people have bet against the delivery of a significant package.'

He said it didn't yet feel like 'job done'. A few 'small leftover issues' still need tying up next year.

'The job is never done of course. But what we have done is a significant part of the job which was to change the paradigm of international taxation.'

Neither does he see big risks of the clampdown fizzling out, for example when the need for legislation meets the US congress.

'The US challenge is to reduce [nominal federal] corporation tax from 35 per cent to about 25 per cent and that will require a broadening of the tax base.

'Congress always has difficulties in passing anything but the US definitely will move. If the US doesn't move, the other countries are at least equipped to fight tax avoidance by US multinationals on their side. The 'cash boxes' in Bermuda will still have to be dismantled.'

Anthony Briscoe, the Bermuda-based Kiwi chief executive of Southern Cross Cable, a joint venture half owned by Spark which is domiciled on the Atlantic island, said he was surprised Saint-Amans had singled out the country, which he denied was a tax haven.

'In the press here he is reported as being favourably disposed towards Bermuda's position,' Briscoe said, pointing to local newspaper story in June that quoted Saint-Amans saying Bermuda 'had some deficiencies, it's true, but they were fixed'.

For Southern Cross' part the subsea cable venture had a 'very clear set of Bermudian rules and laws that we must follow', Briscoe said. 'It is paramount that we clearly prove that control is centred in Bermuda, hence my presence. The majority of board meetings are held here and all contracts are signed here.'

The OECD and G20 have agreed to 'extend their cooperation' on Beps to 2020, which gives some indication as to the timeframe in which they believe the results of the OECD's endeavours will become evident.

OECD secretary-general Angel Gurria said in a statement on Tuesday that profit-shifting had been 'eroding the trust of citizens in the fairness of tax systems worldwide'.

It seems no-one expects that trust to be restored overnight.

Saint-Amans admitted it was good question how taxpayers would know the Beps project had been successful. The OECD's reforms were complex 'precisely to avoid loopholes', he said, and that meant the proof can only be in the pudding.

'We are going to have indicators that should measure the impact. Secondly, I think we are going to see a number of restructures from businesses; these may be under the radar for the public but it will be seen by tax administrations.'

Indeed, Saint-Amans said that latter process had already begun. Some of the multinationals that have copped the most criticism for aggressive tax planning, such as Amazon and Starbucks, have already begun changing their ways, he said.

'These are two iconic companies that have already announced a deep restructuring of their tax planning to be much less aggressive. Starbucks has dismantled its Dutch entity to locate all its activity. Amazon has declared permanent establishment in most of the countries in which it operates where it had not done so before.

'You have many more companies in discussion with tax authorities to redesign their tax planning.'