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Financial Planning > Tax Planning

Multinational companies have to pay taxes after all

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(Bloomberg View) — That was fun while it lasted!

The great multinational experiment — led by such American innovators as Apple, Amazon, Starbucks and Google — in shifting corporate income to a magical stateless place where it was never taxed seems to be coming to an end.

As the Financial Times reported today:

Several leading multinational companies have come a long way towards dismantling structures they have used to minimise their tax bills, according to an official leading an international crackdown on avoidance.

The moves were a sign that the “very aggressive tax planning of the past is over”, said Pascal Saint-Amans, the top tax official at the Paris-based OECD.

That’s not to say multinational corporations won’t keep finding new ways to lower their taxes. This is an arms race, and they have greater resources at their disposal than the government agencies that police them. But it is an indication that, even in an age of globalization and great corporate power, you can’t act with total disdain of the governments of the countries where you operate and expect to get away with it forever.

A couple years ago, when asked by Bloomberg about his company’s aggressive tax avoidance efforts, Google Chairman Eric Schmidt had this to say:

It’s called capitalism. We are proudly capitalistic. I’m not confused about this.

Nowadays, Schmidt and his colleagues at Google are being introduced to something called representative democracy. Or at least bureaucratic logic. The tough European antitrust approach on Google is surely motivated in part by the widespread sense there that company hasn’t been a good citizen — most of the tax avoidance by Google and other American tech companies seems to involve income earned in Europe. And now the Paris-based Organization for Economic Cooperation and Development, also known as the rich nations’ club, is two years into a “Base Erosion and Profit Shifting” project that is already beginning to have an impact.

The BEPS effort is aimed at shutting down “tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.” Last month Amazon started booking its European sales in the countries where they occur, rather than funneling them all through low-tax Luxembourg.  Starbucks moved its European headquarters last year to London from Amsterdam, where complex deals with the Dutch government seem to have allowed it to move income from all over Europe to the Netherlands and pay almost no tax on it. And the “Double Irish” tax structure that Apple, Google and many others used to shift income is on its way out.

In a survey of global corporate tax and finance managers conducted earlier this year, Deloitte found that 56 percent “are anticipating significant legislative and treaty changes in their country as a result of the BEPS initiative,” and 91 percent say corporate tax structures “are under greater scrutiny by tax administrations now than they would have been a year ago.” Some of the individual responses are especially telling:

My sense is that the tax planners at multinational corporations had been operating in something of a bubble for the past couple of decades — able to exercise their craft with more and more creativity without much fear of media scrutiny or political pushback. Those happy days ended a few years ago, in part because the financial crisis unleashed a new activist spirit among regulators and in part because some multinationals had pushed their tax avoidance way too far. So stop complaining, people. This is most likely the new corporate-tax normal.


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