Some estimates have suggested about 40% of investment into India flowed through Mauritius (pictured) in recent years to capture tax advantages.Photograph: Alamy
Multinationals will be required to disclose to tax offices around the world a detailed summary of their global activities, broken down country by country. The figures for each jurisdiction should give often poorly resourced tax officials valuable intelligence on the multinationals’ tax planning, helping them identify and challenge aggressive avoidance.
Countries are to introduce new rules to guard against multinationals building cross-border structures to exploit differences in the tax codes of two countries. The proposed rules are designed to neutralise clever tax engineering to conjure up unintended tax breaks.
A cap will be put on the benefits a multinational can derive from routing investments in a second jurisdiction through a third country. Some estimates have suggested about 40% of investment into India flowed through Mauritius in recent years to capture tax advantages. The OECD believes its rules will now block this kind of so-called “tax treaty shopping”.
Tougher rules on what constitutes a taxable business in a country will mean it is no longer possible to claim you are not active in a jurisdiction if you have a large local warehouse with a many local employees storing and delivering goods which are sold on a website based and operated overseas. This reform most obviously applies to Amazon in its largest European markets. The online retailer has already revised its activities in anticipation of this measure.
Tighter definitions will also attempt to bar digital multinationals from splitting closely allied business activities into onshore and offshore components — a highly profitable company based offshore but able to book sales remotely, and a less profitable, in-market company claiming only to provide “support services” to the overseas company. Many tax experts see this as providing a direct challenge to the way Google operates in several markets, including the UK.
