Advisers to hedge funds, private equity firms and investment managers have raised the alarm that OECD proposals designed to stop multinationals avoiding tax could have unintended consequences for companies and their clients.
Companies say they use transfer pricing so profitable divisions in low-tax jurisdictions do not get taxed at a higher rate elsewhere. Critics say that some companies deliberately allocate larger percentages of profits to low-tax jurisdictions to avoid tax. The OECD proposals seek to ensure that profits are taxed more evenly across all countries where businesses operate.
Pascal Saint-Amans, tax director at the OECD, said that the transfer pricing proposals sought to prevent firms from setting up artificial centres of operation to benefit from local tax laws. He said: “You can’t pretend you are in Ireland, if you are in Bermuda. We have absolutely no problem of any kind with businesses using competitive tax regimes. We have made it very clear it is not a problem as long as your activity is there and not moved… artificially.” International tax experts warn that the OECD reports on base erosion and profit shifting and transfer pricing will have a huge impact on hedge funds, asset managers and private equity firms.
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