Governments target companies that avoid creating tax bases in major markets

Leading countries vowed last month to crack down on tax avoidance by multinationals, asking the Organisation for Economic Co-operation and Development (“OECD”) to draw up new guidelines.

The OECD, which advises its mainly rich members on economic policy, said one area where companies might most effectively avoid tax is by not declaring a tax residence in countries where they have major sales and operations.

It identified the digital sector as an area where this was a particular risk and said it needed to make a detailed analysis of the business models of technology companies.

A Reuters examination of accounts for hundreds of subsidiaries of the biggest US technology companies shows most do not declare a tax residence for their main business in the biggest European markets.

Historically, tax residence has been determined by where companies make sales. By basing themselves in countries like Ireland, the Netherlands and Switzerland - which offer low tax rates or the ability to send money tax-free to tax havens - these companies legally save tens of billions of dollars in tax each year.

- Reuters News