Bermuda – the world's former "top tax haven" – has joined the Organisation for Economic Cooperation and Development's fight against multinational profit shifting.
Bermuda disputes it is a tax haven despite companies such as Apple and Google in the past being accused of using the British overseas territory to minimise the taxes through a tactic dubbed as the "Double Irish with a Dutch Sandwich".
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Tax avoidance inquiry: Apple's evidence 'hard to believe'
Apple's inability to explain where its Australian-generated revenue goes is "pretty hard to believe" says inquiry chair Sam Dastyari, who warns the public expect action on multinational tax avoidance.
The strategy, which has been legally used by companies for decades but is now shunned by tax authorities, involves using payments between related entities in a corporate structure – for example between higher tax nations (such as the United States) and its subsidiaries in lower tax nations (such as Ireland, the Netherlands and Bermuda) – to shift income and thereby reduce tax.
The OECD says Bermuda is among a handful of new nations that have finally joined the crackdown on multinationals known as Base Erosion and Profit Shifting, or BEPS. Other nations to come on board in January include Kazakhstan and West Africa's Cote d'Ivoire.
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The OECD plan now has the backing of 94 nations, including Australia, which the OECD says will make it easier combat multinational tax avoidance and resolve cross-border tax disputes.
"By joining the framework, the countries have pledged to adopt and promote the implementation of minimum standards designed by OECD and G20 countries in the base erosion profit shifting project," the OECD said in a statement released earlier this month.
These standards require the countries to add provisions to their tax treaties to prevent various tax avoidance practices such as tax treaty shopping and dubious transfer pricing.
They will also be required to give tax authorities country-by-country data which will give greater detail about their offshore operations as well as the level of taxes (or lack thereof) paid by subsidiaries.
A recent report by Oxfam found that more than $4 billion in Australian tax is being shifted by Australian-based multinationals into the world's 15 worst corporate "tax havens" each year.
Its report declared Bermuda as the world's top tax haven – a label that the Bermuda Development Agency (BDA) firmly rejects. The BDA said Oxfam's report was "inaccurate, ill-informed and disturbingly prejudiced".
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