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September 19, 2014

OECD Takes Strong Stance on Corporate Tax Avoidance

The Organization for Economic Cooperation and Development (OECD) released a major proposal for curbing corporate tax avoidance. The OECD recommends international cooperation to prevent large corporations from avoiding taxes in the countries where they do business. The OECD plan comes amidst increased calls to crack down on corporate tax avoidance.

"I am very encouraged by the OECD's strong stance," said Eric LeCompte, Executive Director of the anti-poverty organization Jubilee USA, which advocates corporations paying their taxes in developing economies. "Developing countries are losing more money to corporate tax avoidance than they are receiving in official aid. For every 10 dollars developing countries receive in aid, 100 dollars is flowing out due to tax avoidance and illicit flows."

The document contains seven action items for countries to adopt. One of those items is referred to as "country-by-country-reporting" and would compel companies to report profit and trade information to every country in which they do business. This requirement would prevent corporations from shifting profits and using a maneuver called "transfer pricing" to reduce taxable profits in a high-tax jurisdiction where they do business.

"Country-by-country reporting is an important way to get corporations to pay their taxes and stop corruption," said LeCompte. "The developing world is losing a trillion dollars each year to tax avoidance and illicit financial flows. The money is flowing out far faster than it is flowing in."


Aspects of country-by-country reporting have already passed into US and European laws. The International Monetary Fund (IMF) also released a paper this year that argued that corporate tax avoidance is harming poor countries and the global financial system as a whole.

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