A 40-page plan of action drawn up by the Organization for Economic Cooperation and Development was revealed at the G20 summit in Moscow on Friday. A global economic team of 20 nations has endorsed a proposal to rein in tax avoidance practices used by Apple, Google, and other firms.
“The proposal aims to develop rules over the next two years preventing companies from escaping taxes by putting patent rights into shell companies, taking interest deductions in one country without reporting taxable profit in another, and forcing them to disclose to regulators where they report their income around the world,” wrote reporters Jesse Drucker and Rainer Buergin.
Apple and other companies have been accused of using subsidiaries in Ireland and the Netherlands to take advantage of low international tax rates. It is reported that countries that normally accommodate such practices, the Netherlands and Switzerland among them, will back the plan.
Apple is able to avoid paying domestic taxes in the U.S. on its international sales through a process known as the “Double Irish” method. Named as such, because companies are required to set up two Irish companies to utilize the loophole. One company owns the intellectual property rights, and the other licenses those same rights to keep its profits low.
Profits that are collected through the second company are taxed at a rate of 12.5%, compared to the 35% international tax rate imposed by the United States.
The strategy has been referred to by Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy, as “double non-taxation.”