There’s a global tax emergency, people!

by José Antonio Ocampo – November 6, 2019

An OECD proposal to reduce transnational tax evasion contains flaws which developing countries must challenge before it is set in stone.

In the face of global outrage at the low or no taxes paid by some of the world’s largest multinationals, the Group of 20 appointed the Organisation for Economic Co-operation and Development a few years ago to design alternatives to end these abuses. In response, on October 9th, the OECD put forward proposals for a new international tax system which could be imposed on the world in the coming decades.

This is a major issue. In the United States, for example, 60 of the 500 largest firms—including Amazon, Netflix and General Motors—paid no taxes whatever in 2018, despite a cumulative profit of $79 billion, because the current system allows them to do so, and in a completely legal way.

These misappropriations are based on complex arrangements but a very simple principle. The multinational only pays taxes in the subsidiary where it declares its profits. This way, it shows low profits or deficits where taxes are relatively high—even if that is in those countries where the firm undertakes the bulk of its activities. And it reports high profits in jurisdictions where taxes are very low, or even zero—even if the firm has no customers there.

Originally published in Social Europe. Read full article here (subscription may be required).