* OECD says its plans spell end to "massive tax avoidance"
* Critics say they would not have averted past tax scandals
* Tech giants among many companies exploiting tax loopholes
By Tom Bergin
LONDON, Oct 5 (Reuters) - The body that advises industrialnations on economic policy published proposals on Monday tooverhaul the way international companies are taxed in an effortto tackle avoidance.
Tight government finances and media reports on the taxstructuring used by companies including Starbucks and Googlehave spurred significant public anger in Europe and the UnitedStates in recent years over tax avoidance.
The Group of 20 largest economies asked the Organisation forEconomic Co-operation and Development (OECD) in 2012 to look atchanging outdated tax rules that allow multinational companiessuch as Apple and Vodafone to pay almost no tax on their profitsin many jurisdictions.
The companies say they follow the current rules.
Unveiling its recommendations on Monday, the OECD said theyrepresented a fundamental shift, though critics said they didnot go far enough.
"The tax world will not be the same before and after this,"Pascal Saint-Amans, head of tax policy at the OECD, toldreporters.
"We are moving into this new era where massive tax planning,massive tax avoidance is over. It will be much more difficult,much more costly and it (profit shifting) will become evasionand no more avoidance," he added.
The OECD said a conservative estimate of the amount ofuntaxed money moved by companies into tax havens was $100billion to $240 billion annually, suggesting tens of billions ofdollars in lost tax revenue.
Tax advisers agreed that the measures - which had beendebated over the past year - could force many companies torestructure their operations and rethink how they fundthemselves.
A spokesperson for the Confederation of British Industry(CBI), the U.K.'s main business lobby group, said any changesshould be implemented at the same pace internationally to avoidgiving a competitive advantage to some companies.
However, some tax campaigners said the OECD could have gonefurther and questioned whether countries would turn theproposals into law.
"These proposals would not have prevented many of the majortax avoidance scandals of the last few years, nor do they doenough to help developing countries find a sustainable route outof poverty," Pamela Chisanga, Country Director for Zambia atcharity ActionAid, said in a statement.
TECH TITANS
The rules that govern taxation of profits from internationalcommerce date back almost a century.
However, globalisation and technology that allows productsand services to be delivered in non-traditional ways havecreated opportunities for companies to shift profits out of thecountries where the money is earned and into jurisdictions suchas Luxembourg, Ireland or Bermuda which do not tax them.
The technology giants are seen as the most adept atexploiting loopholes, but drug makers, medical device groups,banks, fast food groups and retailers all commonly use contrivedarrangements to cut their tax bills.
Most corporate tax avoidance hinges on transactions betweenaffiliated companies, which reduce the taxable profit in acountry where customers or production facilities are based andboost profits in low tax jurisdictions where the company haslittle real presence.
The OECD plans to target the main ways this is believed tobe done.
One way companies shift profits is to have an onshorecompany borrow from offshore affiliates at high interest rates.
The OECD recommends tackling this by limiting tax deductionsto at most 30 percent of profits. Some countries such as Britainhave no limits. Any change could have a big impact on highlyleveraged businesses such as private equity.
The OECD also recommends changes to rules that allowcompanies to make sales worth billions of dollars in a countrywithout establishing a tax residence there simply by having atax haven entity rubber-stamp sales contracts.
A Reuters investigation in 2013 found that 74 percent of the50 biggest U.S. technology groups used such mechanisms to cuttheir tax bills.http://uk.reuters.com/article/2013/07/23/us-tax-bigtech-idUSBRE96M08W20130723
Tax authorities should also be able to challenge the pricingof inter-group transactions - known as transfer pricing - whichallow profits to leak out of the countries where they areearned, the OECD said.
For example, a company should not be allowed to position asubsidiary in a tax haven which then generates large profits bybuying goods or services it sells to onshore affiliates atmarked-up prices. The OECD said in future this profit should beshared among the units where the end user sales are made.
That could hit UK telecom group Vodafone, which made morethan 540 million euros tax-free last year at a Luxembourg unitwhich buys handsets and sells them to group companies. Thecompany said it followed all international tax rules.
Governments can introduce some measures unilaterally but themost important actions would require changing the terms of taxtreaties between countries.
To avoid such complexity, the OECD will continue to work ona mechanism to allow automatic updating of swathes of thethousands of tax treaties but it will take until the end of 2016to devise this.
It is likely to take years before all the measures becomeeffective even if governments remain committed. But Saint-Amanssaid companies including Starbucks and Amazon were alreadyunwinding arrangements to comply with the OECD proposals. (Reporting by Tom Bergin; Editing by Gareth Jones)
Vodafone (VOD)
