The Organisations for Economic Co-operation (OECD) is working on a series of steps designed to aid member countries in closing loopholes that allow multinationals to avoid tax.
The Paris-based think tank yesterday published a report outlining the structures and practices on which it believes countries need to focus to increase their tax take from multinationals.
Its secretary general, Angel Gurria, warned that international rules, such as double-taxation treaties, are outdated and often abused to the point where they become "double non-taxation treaties".
The report, “Action Plan on Base Erosion and Profit Shifting”, highlights the fact that in many jurisdictions, businesses can establish non-resident affiliates and route income through them, thus avoiding tax.
Similarly the organisation is exploring how countries can bring tax regimes into line with the digital economy, which allows companies to maintain a strong online presence in one nation while paying tax on the profits in another.
Channel revenues
Multinationals that have operations in the Republic, such as Google and Apple, channel revenues through Dutch affiliates before returning them to a second Irish-based entity that is taxed in Bermuda.
The system – the "double Irish Dutch sandwich" – came under the spotlight recently when Apple chief executive, Tim Cook, gave evidence to a US Senate inquiry into the technology giant's tax affairs.
The Republic's business tax code and the 12.5 per cent rate that it applies to corporate profits, frequently come under fire from other countries. US Senator, Carl Levin, repeatedly described the State as a "tax haven" during the hearings at which Mr Cook gave evidence.
However, Fergal O’Brien, head of policy and chief economist with business body, Ibec, said yesterday that the Republic “should have nothing to fear” from the OECD report.
He pointed out that one of its central aims is to ensure that substantial economic activity is taxed in the country where that takes place.
Economic substance
IDA Ireland, the agency responsible for bringing multinationals to the Republic, pointed out that it is "in the business of attracting companies" of economic substance.
“It is commonly accepted that the only way to address the issues, which the project is seeking to counter, is for countries to work together and to consider how international rules can be amended,” it said in a statement.
An OECD spokeswoman said it will roll out those recommendations over the next two years.
