Corporate Law Blog

International organization addresses issue of tax avoidance

At the beginning of the week, the Organization for Economic Cooperation and Development—an international organization founded to advise industrial nations on economic policy—proposed a plan to address what has become an important international issue: tax avoidance. The OECD, in response to a request to look at the tax rules international companies use to navigate tax planning, came up with recommendations which are supposed to address concerns about tax avoidance. 

Tax avoidance, to be sure, is different from tax evasion, the difference between that tax evasion involves noncompliance with tax law. By contrast, tax avoidance is legal, and involves a company’s efforts to minimize its tax burdens. In some cases, tax avoidance strategies may have an artificial character, but even in such cases, these tactics are still considered legal. What is the problem, then, with tax avoidance? 

The problem, according to some experts, is that tax avoidance can take on such a degree of artificiality that it borders on the illegal, without technically crossing the line. This is a problem for governments which depend on their fair share of revenue from international companies which benefit from their economies.

The recommendations made by the OECD, according to sources, will make it more difficult for companies to come up with artificial strategies to avoid tax liability. This, no doubt, will cause companies to do as they have always done—strategize differently so as to make themselves more efficient and less burdened by tax obligations.

In our next post, we’ll continue speaking about this topic, particularly the importance of engaging in effective, and legal, tax planning.