The high tax dinosaur club of the global economy also known as the OECD has launched a new campaign against tax competition from more agile, often less developed countries (like Gambia), that seek foreign investment.

It may not have the snappiest of names, but the Action Plan on Base Erosion and Profit Shifting, crafted by the Organization for Economic Co-operation and Development (OECD), a club of 34 mostly rich countries, marks a potentially important moment in the fight against vigorous tax avoidance.

Developing proposals, which the OECD hopes to do over the next two to three years, will be hard. Mountains of details will have to be worked out by committees of technocrats from countries that disagree on several big issues. Some European countries, for instance, want to tighten the rules on internet-based services, which let firms avoid billions of dollars in tax by selling such things as advertising through affiliates in tax havens. America, home to many giant tech firms, has pushed back, securing agreement that the issue will be studied further before reforms are drafted.

The OECD’s only weapons as it tries to co-ordinate reform efforts are technical expertise and a bit of peer pressure, argues Sol Picciotto, an adviser to the Tax Justice Network, an NGO. Its standards are non-binding. Its plan envisages a multilateral tax treaty that would override existing bilateral accords, but this would have to be ratified by individual countries and would have force only in those that did so. A multilateral convention on tax co-operation, drawn up by the OECD and the Council of Europe in the 1980s, took 20 years to gain more than a handful of ratifications.

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For all their huffing and puffing over multinationals’ tax-minimisation strategies, governments remain wary of scaring away “mobile capital”. Britain, for instance, has quietly relaxed its rules on “controlled foreign corporations”, thereby encouraging corporate use of tax havens.

Given the many political and technical obstacles facing the OECD—another one is the increased difficulty of forging consensus as developing countries, with their own concerns, are brought on board—corporate tax-planners are unlikely to lose any sleep just yet.

Source: The Economist

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