PARIS (Reuters) - The days when multinational companies could exploit fiscal loopholes to escape tax could soon be numbered, after governments gave the OECD strong backing to design an international clampdown on corporate tax avoidance.
Ministers from Organisation for Economic Cooperation and Development and other countries backed OECD efforts on Thursday to press ahead with new guidelines to ensure firms are not able to pay little or no tax due to differences between tax regimes.
The Group of 20 economic powers have asked the OECD to deliver an action plan at a July meeting of G20 finance ministers in Mexico.
Corporate tax has climbed up the political agenda after news reports highlighting how multinationals reduce their tax bills struck a nerve with voters themselves increasingly pinched by higher taxes.
Many existing taxation rules were drafted in the colonial era of the 1920s and are ill-adapted to the new reality of cross-border online commerce.
The head of the OECD's tax division, Pascal Saint-Amans, said that 12 recommendations would be made with an aim to agree an overhaul in two years, possibly with a new multilateral tax convention or rewriting existing bilateral treaties en masse.
"My assessment is that there is strong consensus on what we will come up with," Saint-Amans told journalists at the OECD in Paris on the sidelines of a ministerial meeting focused partly on the issue of corporate tax.
He added that so far there was not any one area of change that countries had flat out rejected, and said some countries might want to go even further than the OECD's proposals.
Among the guidelines, the OECD will float ideas for so-called hybrid debt/equity instruments that feature tax-deductible interest payments in one country and pay tax-free dividends in another country.
"We need to tackle the fact these gaps might result in tax planning, which is legal and is called arbitrage, that is detrimental to us in the end of the day," Saint-Amans said.
While agreeing rules for hybrid structures may prove tricky, he predicted it would be simpler to agree rules on how much interest on debt can be deducted, which currently varies widely among countries.
The proposals will also cover the issue of cross-border transactions between affiliates known as transfer pricing, which are a common way of shifting profits to low-tax jurisdictions.
Saint-Amans said that the OECD would in particular address the problem of how to value intangible assets like royalties that affiliates pay to sister firms in tax havens.
Apple Inc(AAPL.O) came under fire this month in the United States Senate for the iPad maker saving billions of dollars in U.S. taxes through Irish subsidiaries.
U.S. internet company Google(GOOG.O) also faced angry questions from British lawmakers about how it has reduced its tax bill in Britain, where the company says it is under investigation over transfer pricing. Google says it complies with UK tax law.
Multinationals are not entirely wary of efforts to close loopholes between tax regimes, which a General Electric executive said could be in big business' interest as current rules were inconsistent and varied too much across borders.
"There is considerable instability, and instability is the enemy of business and investment," said William Morris, GE's senior international tax counsel, who is liaising between business and the OECD on the overhaul.
The OECD, a club of mostly wealthy nations, already plays a key role coordinating tax issues between developed economies, with a multilateral convention laying down rules for tax authorities to help each other avert cross-border tax evasion.
A growing number of countries are joining the convention, with Luxembourg and Singapore - which have had a reputation as tax havens - among the latest batch of countries to sign up to the treaty, which now has nearly 60 signatories.
Editing by Catherine Evans