It’s time to make multinationals pay their fair share of tax, campaigners urge

The international system for taxing multinationals is broken and out of date, with many loopholes which allow unscrupulous companies to avoid paying their fair share - as the recent Google, Amazon and Starbucks scandals have shown. So say 58 campaigning organisations today, in a response to the OECD’s February report Addressing Base Erosion and Profit Shifting.

Alex Prats, Christian Aid’s Principle Economic Justice Adviser, said: ‘The OECD identifies aggressive tax planning by multinationals as a fundamental cause of base erosion, which includes tax avoidance and evasion. But countries such as the UK, Germany, France and the US have only asked for solutions when their own economies have felt the consequences. For many years, however, unfair tax rules have been seriously undermining efforts to tackle poverty in developing countries.

‘The current tax rules, which were written 80 years ago, assume that the different entities than form multinationals exchange goods and services as if they were mutually independent. But this is a fiction. These different subsidiaries follow an overall business strategy. The truth is that the tax system has not kept pace with the way multinationals operate.

‘So we agree with the OECD, that the fundamentals of the current tax system need revisiting. And because this is a global problem that requires a global solution, developing countries cannot be excluded from the process. We need tax justice for everyone, not just for rich countries. So far, the OECD seems not to have understood. We find this unacceptable.’

The new briefing paper, No More Shifty Business, calls on the OECD and G20 to work with the United Nations Tax Committee and governments in developing countries to define new rules for the taxation of multinationals. 

The new rules must ensure that each country is able to tax a fair share of the profits earned by multinationals operating within its territory. They should also treat multinationals as what they really are: complex structures bound together by centralised management, functional integration and economies of scale.

Finally, the briefing argues that multinationals must pay their taxes where their economic activities and investments are actually located, rather than in jurisdictions where their presence is fictitious and explained by immoral tax avoidance strategies.

Alex Prats added: ‘If, as the OECD states, the current system is broken and does not reflect the way that businesses operate in today’s globalised world, and if loopholes are exploited by some the expense of everyone else, then the rules must be changed. Individual countries acting alone cannot solve the problem.

‘The current tax system raises serious issues of fairness and compliance. Aggressive tax planning by unscrupulous multinationals hinders development and increases inequality. So we are calling on the OECD, G20 and UN Tax Committee to work together and find an alternative that reflects how multinationals actually operate today - and to make them pay their fair share of tax in all countries where they operate.’