Avoiding/ Evading Paying Tax Flashcards
Outline transfer pricing
Large multinational orgs operate globally / give opportunity to decide where to locate activities & advantage for different pricing oops to allocate profits across group
Enables profits shifted to low tax jurisdictions despite work undertaken elsewhere
Transfer pricing - price agreed between 2 connected parties for sale of G&S
+can be manipulated as doesn’t affect wealth of owner / structure business profits so earned in low tax jurisdictions / unfair division with jurisdictions with taxable profits
Outline the transfer pricing problems
Transfer of goods worldwide trade / can artificially shift tax liability between jurisdictions
OECD issued transfer pricing guidelines on issue & endorsed international recognised arm lengths principe
+requires terms of contract replaced with terms achieved if transaction undertaken at atms length between parties
+profits recalculated accordingly to determine tax liability
+guidelines also address issue of manipulating double taxation for multinational orgs operating
What is the OECD
Organisation for economic cooperation & development
30th sept 1961
International org / promote policies to improve economic & social well being
34 members
Council representative from each state & European commission
Provides forum, cooperation & solutions on tax evasion & harmful tax practices
Outline the OECD harmful tax completion report (1998)
Report identified jurisdictions deemed tax havens / listed 40 uncooperative tax havens / met criteria of black listing
- low income tax
- ring fence residents & non residents
- lack of transparency
- failure to exchange info
OECD called upon jurisdictions to make commitments to stop harmful practices
Outline OECD effective exchange of info
Legal framework In place to allow jurisdictions to cooperate without violating laws / enforce tax laws
International pressure on secrecy jurisdictions / implement standards on transparency & exchange
Cooperating jurisdictions required to amend legislation to increase transparency & facilitate exchange when requested by authority in OECD member state
Uncooperative jurisdictions face sanctions
Progression 2009 - last 3 uncooperative jurisdictions committed to OECD standards
Outline the OECD model on tax convention
International agreed tax standards developed by OECD & non countries requires exchange of info on request of all tax matters without regard to a domestic tax interest requirement or bank secrecy provisions
Info exchanges subject to strict privacy rules & only used for purpose provided in convention
Only relevant info exchanged & requesting state pursued domestic means to access info / expect if gives rise to difficulties
International pressure (Belgium, Switzerland , Luxembourg notified OECD withdrawing reservation to article
Outline the OECD model on exchange of info
Improve standard of effective exchange for purposes of OECD harmful practice initiative
When jurisdictions sign 12 agreements with OECD standards, considered to have sustainably implemented agreed tax standard / take in account other matters
