Multinational taxation system is at a crucial point thanks to the measures that have been approved by the OECD and that will be soon adopted by the Ministries of Finances of G20’s countries. More strict measure will force multinationals (also digital ones) to fill in appropriate reports about the activities they have been carrying in every country. This should be a reasonable solution to avoid tax evasion.
Beps (Base Erosion and Profit Shifting) is the acronym used to explain the new program compiled by G20 and the OECD who have been working on it since 2013. It is is one of the more obscure business issues that’s going to have a huge impact on the way multinational corporations run their operations starting this year. The OECD calculated that the total amount of global tax evasion is between 100 and 240 million dollars each year.
The program was officially published last week in Paris. It presents fifteen concrete key actions. Some of them can be implemented immediately, while others need to wait until the signature of another convention in 2016. Previously, every country is supposed to amend its own legislation in favour of the new global one.
The aim of the program is to tax those activities that have an increasingly important economic presence, even if they are not physical. Indeed, the package concerns mainly “digital” multinational. To determine the value of the economic activity, every multinational company should give real data and fill a sort of auto-certification about every single transaction. Before, companies had to show only the transaction flow from one country to another. Now, the full details of each companies’ tax payments to each country will be available in a standardized, shareable template. Beyond that, the new reporting guideline will require financial, sales and personnel information to help countries determine the value of the operations within their borders and how that should be reflected in taxes for that jurisdiction.
Moreover, an ancillary measure – conceived as a way to incentive the establishment of a good organisation in every single country – seems to hit especially the digital multinational world: a way of withholding tax on digital activities income. The OECD has not determined any rate yet, but countries like Italy are already approving the new decision with favour, proposing their own rates.
Recipients of the new program are multinational companies but also countries. Indeed, political outcomes are also showing up: the United States, parent company of all those big multinationals that are acting in Europe – from Google to Facebook- worked hardly at the BEPS negotiation table but are not ready to sign the agreement yet, as for other 90 countries.
Amazon in the crosshairs
The finger is firmly pointed at the big players in the digital market, like Google, Apple and Amazon. Digital companies have been the most aggressive in terms of tax planning.
“A working group will continue to monitor developments in this sector in order to ensure that we have the means to respond swiftly if things go off course or if the situation changes” Pascal Saint-Amans
The states concerned have also decided to combat the practice of “tax shopping” to stop companies systematically looking for the most advantageous place to move their profits or establish their headquarters. This is how the Netherlands became the gateway to Europe for some unscrupulous companies.
One of the best examples is Amazon: the e-commerce colossus had recently decided to open new establishments in Italy, Spain, France, UK and Germany, ahead of the headquarters based in Luxembourg. Amazon was already aware of the OECD on-going negotiation while registering new addresses in Europe. By having a tax structure in line with international guidelines, it will also mean that digital companies will be paying more taxes too.
Amazon directly manages logistic platforms in every country, allowing customers to be supplied with products quickly and efficiently. The presence of a warehouse was never considered as an “activity” itself, so that it can be imposed the opening of an organised establishment on the specific country where the warehouse is located. But reflections on e-commerce that have been carried out by the OECD just determined a sudden shift. Documents defining the idea of “organised establishment” and the rules for its identification suggest that for a company realising e-commerce, the warehouse is just an auxiliary activity and forces the company to open an real “organised establishment” within the country of residence or in which the activity is performed.
Further reading: OECD first guidelines