Double taxation risk in chasing multinational companiesPublished 27 March 2014 12:33, Updated 27 March 2014 13:44 A call to tax technology companies such as Apple and Google in the countries where they have substantial activities has re-ignited concerns companies may be taxed twice and stop business altogether.The Organisation for Economic Co-operation and Development, which is working on a global plan to prevent companies from avoiding paying tax on profits, wants to end structures used by companies such as the "double Irish" which exploit differences between tax codes to move profits from Ireland to zero tax countries like Bermuda.An Australian Financial Review investigation last month found that Apple has shifted an estimated $8.9 billion in untaxed profits to Ireland over the past decade.The OECD in a discussion paper on the digital economy released on Monday night notes that "structures aimed at artificially shifting profits to locations where they are taxed at more favourable rates, or not taxed at all, will be rendered ineffective".It wants the taxes paid by multinationals to align with where "economic activities takes place"."This will restore taxing rights", with the "aim to put an end to the phenomenon of so-called stateless income", the paper said.Tax experts said if companies like Apple are stopped from shifting profits through Bermuda, the next question is, which country has the taxing rights.Governments could be in dispute about it , and companies may decide to pull out if more than one country taxes.'Toll road problem'"It's the classic toll road problem," said Grattan Institute chief executive John Daley."People start putting up toll roads everywhere, and eventually no one uses the toll road. If there's multiple countries wanting to tax the same activity, then companies may not bother with that activity.""If every country the iPhone passes through wants to levy a 20 per cent tax on profit - let's say America charges 20 per cent because that's where the product is designed, then China charges 20 per cent because that's where it's manufactured and Australia charges 20 per cent because that's where they sold it - it's no longer worth making an Apple iPhone."To collect more tax, the OECD is examining how tax authorities can rework the old concept of "permanent establishment" - a rule that says a company must have a physical presence to be charged tax.In the modern digital economy, many multinationals don't have a physical location in some countries and avoid paying tax.This was how Google's Australian arm paid just $74,000 in tax in 2011, despite generating billions in sales revenue.Activities spread"It is increasingly possible for a business's personnel, IT infrastructure and customers each to be spread among multiple jurisdictions, away from the market jurisdiction," the OECD says.While the problem is not unique to digital businesses, it was "available at a greater scale in the digital economy than was previously the case"."A...
