Corporate Tax Maneuvers Pose Risk to Fairness, OECD Says

Multinational corporations’ use of aggressive tax planning to shift profits to low-tax countries poses a serious risk to fairness and tax revenue, according to the Organization for Economic Cooperation and Development.

Tax systems haven’t kept pace with changes in how companies do business, allowing corporations to book their profits from intellectual property in jurisdictions without income taxes even though their customers are in developed countries with corporate levies, the OECD said in a report being released today in Paris.

“What is at stake is the integrity of the corporate income tax,” said the report. Failing to respond, it says, would create “unintended competitive advantages compared with enterprises that operate mostly at the domestic level.”

The report called for coordinated action by governments to plug gaps between their tax systems, and it said there is an “urgent need” to solve the problem. Companies have urged countries to prevent double taxation of the same income by multiple jurisdictions while taking advantage of “double non-taxation,” situations where income is effectively taxed nowhere, according to the report.

“It may be difficult for any single country, acting alone, to fully address the issue,” the report said.

The OECD is an association of 34 developed countries, including the U.S., Canada, Germany and Australia.

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