The OECD's call for a "fundamental" rethink of corporation tax frameworks received instant backing from the G20 group of finance ministers on Friday.
The Paris-based think tank opined that existing tax frameworks in various jurisdictions were open to abuse by multinationals and not geared for the digital age where cross-border online trading was now the norm.
The OECD added that it had identified a number of loopholes used by companies in the technology, pharmaceutical and consumer goods sectors. It also criticised the practice of designating corporate units in tax havens as holders of group funds, patents or brands that can then be lent or licensed, for generous fees, to affiliates in countries where bulk of their business takes place.
The announcement comes in wake of revelations of aggressive tax avoidance and mitigation measures adopted by several technology and multinational firms such as Google, Apple and Starbucks among others. G20 finance ministers to tackle corporate tax avoidance
OECD secretary general Angel Gurria said, "International tax rules, many of them dating from the 1920s, ensure that businesses don't pay taxes in two countries - double taxation. This is laudable, but unfortunately these rules are now being abused to permit double non-taxation."
Gurria also said that tax income should reflect the economic activity it generates. The OECD has launched a two-year consultation to update and coordinate national tax laws with a view to publishing an alternative to current plans for taxation.
Responding to OECDï¿½s announcement, UK Chancellor George Osborne he was delighted by the move. "People and companies have to pay the taxes that are due, it's the only way to operate in a fair and competitive society," Osborne told reporters at the G20 finance ministers' summit in Moscow on Friday.
Some G20 member countries had proposed a reform of corporate income tax under which companies would be taxed where their customers were based, but majority rejected the idea. If the OECD comes up with a plan, it would be up to individual G20 nations to adopt it as the think-tank has now power to compel governments.
Business lobby groups such as the Confederation of British Industry (CBI) and the United States Council for International Business (USCIB) have expressed fears that if the measures are not properly thought through, they would impact trade and innovation and ultimately cost jobs.
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