The end of tax avoidance as we know it?

05 October 2015

Rebecca Reading

The OECD has delivered its final package of reports on its Base Erosion and Profit Shifting project. Running to over 1,000 pages, the announcements were accompanied by some bold rhetoric, in effect announcing the end to international tax avoidance as we formerly knew it. There is no question that there seems to be real political will behind this project, and with the quite remarkable consensus achieved, seemingly across the board, the vast investment made by the OECD on its Action Plans must be expected to lead to wide-scale change.

There was also some realism from the OECD in its acknowledgement that many challenges lie ahead, and the work was far from over. Ultimately there is a real prize to be had here – it is imperative the public trust in the international tax system is restored. Tax authorities globally are looking for a fairer deal, and in the longer term companies operating internationally should benefit from a more coordinated approach.

Alongside today’s announcement, the UK government also today published its draft regulations and a technical consultation for the implementation of country by country reporting – a key part of the OECD’s plan. While these fall short of demands by some campaigners to put this information into the public domain, the measures are nonetheless very significant and are likely to encourage behaviour change by multi-nationals.

While the focus of the project has always been large multinationals, some recommendations will have wider implications, and there is a danger that some smaller companies with international operations could be seen as easy targets by tax authorities.

For the first time, the OECD also went on record quantifying the value of profit that had escaped taxation – that is the tax base erosion from which the project takes its name. Acknowledging some serious data limitations, the OECD stated that global corporate income tax revenue lost was estimated as being between 4 per cent and 10 per cent of global totals annually, and this equates to a staggering $100bn - $240bn. This is clearly a significant sum.

But interestingly only last week, Shadow Chancellor John McDonnell stated that the figure for the total UK tax gap was an eye-watering £120bn, whilst by contrast, HMRC believe it to be a more conservative £34bn.

If Mr McDonnell is to be believed, then the UK is where all the tax is leaking through the cracks. So looks like we really could be a tax haven’ after all…