Financial Times | 7th June 2017:
Deal to abolish ‘treaty shopping’ hailed as a turning point.
Some 70 countries will sign a pact on Wednesday to crack down on international tax avoidance, with changes that backers say will increase the worldwide corporate tax take by up to 10 per cent.
Countries including the EU’s 28 members, India, China and Australia — but not the US — will sign a pioneering agreement in Paris that will make changes to thousands of treaties to halt abuse by companies and improve dispute resolution.
The accord is part of an initiative launched by the G20 group of leading nations to tackle “base erosion and profit shifting” — tax avoidance strategies that shift profits to low or no-tax jurisdictions — in the wake of a public backlash over avoidance by companies such as Amazon, Apple and Google.
“The treaty changes are a big deal,” said Bill Dodwell, head of tax policy at Deloitte, the professional services group. “Countries are demonstrating that they are adopting the minimum standards.” He added that overall the changes were likely to result in tax rises for companies averaging about 8-10 per cent, with US tech titans set to be affected.
The accord is intended to put a stop to “treaty shopping” — the practice of routing income to countries with attractive tax treaties via “brass plate” companies with little presence on the ground beyond a mailing address.
It is likely to have a particular impact on countries such as Luxembourg, Mauritius and the Netherlands, where treaty shopping has raised the stock of foreign direct investment far beyond the size of the countries’ economies.
The Paris-based Organisation for Economic Co-operation and Development, a champion of the accord, hailed what it said was“a turning point in tax treaty history”. Once ratified by its 70 signatories — a process that may take until 2019 — the agreement will result in the simultaneous revision of 2000 treaties, saving governments decades of negotiations.
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