Representatives of more than 60 countries have signed a pact aimed at clamping down on international tax avoidance, a move that could put a ‘nail in the coffin’ of strategies such as shifting profits to lower-tax jurisdictions.
The states, which included all EU members, plus India, China and Australia, signed a multilateral instrument that will implement changes to thousands of tax treaties to halt abuse by companies and improve dispute resolution.
The signing formed part of efforts by the Organisation for Economic Co-operation and Development (OECD) to clamp down on tax avoidance. The organisation claims that tax avoidance results in a loss of up to 10% of worldwide corporate tax takings.
However, ratification of the agreement is expected to take at least a year.
Heather Self, partner at international firm Pinsent Masons, said governments had ‘lost patience’ with tax avoidance schemes by global companies.
However, she warned there could be an increase in international tax disputes as countries will be implementing the recommendations in ‘slightly different ways and at different speeds’.
Self welcomed the use of arbitration as way to resolve international tax disputes but warned that there will be concerns as not every country in the agreement has signed up for that part.
Jonathan Pickworth, partner at US headquartered White & Case, said: ‘The clampdown on tax avoidance and evasion is the current flavour of the month. And like most enforcement trends it is a global initiative.’
He added that measures were already planned in the UK including a failure to prevent tax evasion offences in the incoming Criminal Finances Act as well as recent high-profile criminal action by HM Revenue and Customs.