Is your local community suffering because of inadequate public infrastructure like good schools, hospitals, and roads? Big companies operating in your country may be avoiding fair tax payments to your government. If so, the OECD Guidelines may help you fight for justice.
What the OECD Guidelines say about taxation
The OECD Guidelines encourage companies to behave as good corporate citizens in the area of taxation, adopting measures to stop avoiding tax payments around the world and depriving governments of necessary revenue. You can use the OECD Guidelines to demand that companies:
- Pay taxes promptly following not only the literal wording of applicable tax laws, but the intention of relevant legislatures. This means that if legislators intend tax to be paid, companies should not use legal loopholes or methods of tax avoidance to avoid taxation.
- Implement measures to tackle tax avoidance, including minimum standards to avoid abusing tax benefits provided through tax treaties, in alignment with the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.
- Follow the “arm’s length” principle for transfer pricing. The arm’s-length principle is the international best practice for ensuring members of a multinational enterprise group pay the same price to each other for internal money transfers as they would for transfers with unrelated companies. This principle seeks to stop companies within a group from unfairly and cheaply shifting profits or losses between each other to avoid tax payments.
- Prioritise transparency and reporting on tax issues in alignment with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) project. Examples of transparency include sharing information on intra-group economic relationships and transfer pricing practices; preparing and exchanging country-by-country reports; and disclosing aggressive tax planning schemes.
- Implement a robust tax risk management system to act as a good corporate citizen. Corporate boards should stay informed to avoid all potential tax-related risks, not only financial and regulatory risk, but also reputational risk from being exposed avoiding taxes.
Tip
The OECD Guidelines do not call on companies to undertake due diligence specifically for harmful impacts related to irresponsible tax practices. But as tax avoidance is inextricably linked with human rights and environmental harms, civil society can still call for companies to address such harms through their due diligence processes. Civil society should call out companies’ failure to implement the recommendations of the BEPS project and other emerging best practice on tax avoidance. Wherever possible, civil society should argue that company practices to avoid taxation actually violate the intention of relevant national legislatures. Civil society may also look to other bodies, such as the United Nations, for support countering tax avoidance.
Read the text
- Chapter XI (Taxation): all paragraphs; commentaries 123, 126-127, and 130
- Chapter II (General Policies): paragraphs 11; commentaries 15-29
- Chapter IV (Human Rights): paragraph 5; commentaries 45 and 50
- Chapter VI (Environment): paragraph 1; commentary 67
Additional important information
What are the OECD Guidelines?
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines) are recommendations from governments to companies on how to act responsibly. The OECD Guidelines set non-binding standards for responsible business conduct across a range of issues important to communities, such as human rights, workers rights, and the environment, and also cover issues such as corruption and taxation.
Governments that follow the OECD Guidelines must establish a non-judicial complaints body called a National Contact Point for Responsible Business Conduct to promote the Guidelines and handle complaints about harmful business activity. The Guidelines set good standards for all companies, but complaints can only be filed against two types of companies operating across borders:
- multinational enterprises headquartered in a country that follows the OECD Guidelines, or
- multinational enterprises operating in a country that follows the OECD Guidelines.
How can you use the OECD Guidelines?
Civil society can use the Guidelines to:
- Raise community awareness about company standards.
- Talk to companies to demand better conduct.
- File complaints when companies fall below the standards.
- Advocate for strong laws and policies on corporate responsibility.
Further resources