The OECD has presented its plan for eliminating tax loopholes for multinational corporations. Companies will have a much harder time avoiding a full tax bill from now on, the OECD's Achim Pross tells DW.
Multinationals such as Google, Amazon, McDonald's and Starbucks have long enjoyed low tax bills without breaching the law.
Their armies of tax experts simply exploited loopholes between different countries' tax rules. This has often resulted in double non-taxation, meaning profits were shifted back and forth between subsidiaries until there was nothing left to tax. The technical term for this strategy is Base Erosion and Profit Shifting (BEPS).
The damage to government coffers has been huge - between $100 billion and $240 billion (89.4 billion to 214.6 billion euros) globally per year, according to the Organization for Economic Cooperation and Development (OECD), a Paris-based policy advisory group.
But now the OECD has a plan to tackle this problem.
"It's a very global effort of a large number of people," Achim Pross, head of international cooperation and tax administration of the OECD, said in an interview with DW.
Pross insisted that it was not only the 34 mostly wealthy member countries of the OECD who worked out the plan. "More than 60 countries have come together over a period of two years. We received 12.000 pages of comments, we probably had hundreds of meetings. We've engaged with regional organizations, the United Nations, the International Monetary Fund and the European Commission who all participated in the working groups."
'No more Bermuda triangle'
Upon announcing the 15-point plan to fight BEPS, the OECD's Pascal Saint-Amans said: "Playtime is over."
The plan is the first substantial update to international tax standards in almost a century, according to the OECD.
"We will stop double non-taxation, non-taxation or low taxation where the income disappears between countries - whether this is because of hybrids, or transfer pricing gaming or a number of other things," Pross told DW.
"The arrangements and profit shifting schemes you have seen in the past, you will not see in the future," Pross added. "There will be no Bermuda triangle where income can just disappear - poof! - between two countries that didn't even know that this was going to happen."
The plan aims to bring more transparency into the international tax system, "so tax administrations have a much better sense of what's going on," said Pross.
Multinational companies are to be required to declare numerous data about their subsidiaries to the tax administrations, including their revuenues, profts and number of employees.
"There is a much stronger emphasis on substance," said Pross, with substance being the technical term for the economic purpose of a transaction. The main goal is to oblige companies to pay taxes in the countries where end user sales are made.
For online retailer Amazon, who greatly profits from having its European headquarters in low-tax Luxembourg, this could mean that sales from a warehouse in Germany will be taxed higher than now. Similarly, it could affect UK telecom group Vodafone, which according to Reuters made more than 540 million euros tax-free last year at a Luxembourg unit which buys handsets and sells them to group companies all over Europe.
Tax competition will continue
"Any structure that relies on paper profits, any structure that doesn't have substantial activity will no longer be possible once this plan is implemented," Pross said.
He did admit, however, that multinational companies might be able to exploit new and different tax loopholes in the future.
Technology firms are seen as being particularly adept at exploiting loopholes, mainly due to the virtual nature of their business. Apple's retail platform for music and films, iTunes, for instance, can sell to customers all over the world without the necessity of physically moving goods across borders.
A Reuters investigation in 2013 found that three-quarters of the 50 biggest US tech firms used profit shifting and other measures to reduce their tax bills. But drug companies, medical device groups, banks, retailers and fast food groups all known to do the same thing.
Competition between countries trying to attract business with low tax rates is not going to disappear as a result of the OECD's plan, according to Pross.
"We're not telling any country what its tax rates should be, or the particular structure of its tax system," he said. "But what we are saying is: Compete on a level playing field. Compete in a transparent world where tax administrations know what multinational companies do."
Criticism from Oxfam and businesses
The OECD's plan will be submitted for approval by the finance ministers of the 20 biggest economies (G20) at their meeting next week, before moving on for endorsement by the G20 leaders during their summit in November.
"We believe the probability of this package being implemented is very high," Pross said, adding that it could take years before the changes come into effect.
The plan was criticized by the advocacy group Oxfam for not going far enough. It "will not stop multinational companies from cheating poor countries out of billions of dollars in taxes - money which is desperately needed to tackle poverty and inequality," said Manon Aubry of Oxfam France in a statement.
On the other hand, business representatives worried that the plan might go too far. Companies "still have concerns that some of the recommendations may lead to double taxation of income," said Will Morris, chairman of the tax committee of the Business and Industry Advisory Committee to the OECD, adding: "Many important details remain to be worked out."