G20 Backs Plan To Curb Global Tax Avoidance
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Leaders of the Group of 20 endorsed a new standard on tax transparency over the weekend, warning that governments risked “global tax chaos” chasing dwindling revenues from multinationals unless the international tax regime is radically overhauled.
The endorsement, issued at the end of a two-day G20 meeting in Moscow, builds on an action plan drawn up by the Organisation of Economic Cooperation and Development to stop firms moving their profits across borders to avoid taxes.
Leaders of the Group of 20 endorsed a new standard on tax transparency over the weekend, warning that governments risked “global tax chaos” chasing dwindling revenues from multinationals unless the international tax regime is radically overhauled.
The endorsement, issued at the end of a two-day G20 meeting in Moscow, builds on an action plan drawn up by the Organisation of Economic Cooperation and Development to stop firms moving their profits across borders to avoid taxes.
The OECD report, commissioned by the G20, sets out 15 key steps the international community needs to take to modernise the current global tax system, which it argues is largely unequipped to deal with mobile multinational firms that have found ways to shift profits to low-tax countries.
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The report warns that “inaction in this area would likely result in some governments losing corporate tax revenue, the emergence of competing sets of international standards and the replacement of the current consensus-based framework by unilateral measures which could lead to global tax chaos.” That in turn could lead to the re-emergence of double taxation, where two countries seek to tax the same corporate income.
The OECD said a “bold move by policymakers” is necessary to prevent a worsening in the position.
“The way in which multinationals have greatly minimised their tax burden has led to a tense situation in which citizens have become more sensitive to tax fairness issues,” the OECD warned.
According to Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, such gaps have facilitated tax planning by globalised players. “The goal of the action plan is to close down the avenues that we have left open.”
Among the highlights are additional disclosures multinationals must make to all tax authorities, helping officials know where to look for the worst avoidance. There are proposals to require companies such as Amazon with extensive warehouse networks in a country to pay more local tax; multinationals posting high-value “intangible” assets, such as brands and intellectual property rights, to tax havens will also be targeted, as will tax breaks introduced by individual countries that are seen as predatory.
UK Chancellor George Osborne said the G20 announcement was an “important step towards a global tax system that is fair and fit for purpose for the modern economy”.
The strategies that multinational corporations use to minimise their tax bills have grabbed headlines in recent months as many governments have stepped up efforts to increase their revenue to cut high budget deficits and debts.
In May, an investigation by the U.S. Senate revealed that, through the use of loopholes in Irish and U.S. tax laws, Apple paid little to no corporate taxes on at least $74 billion over the past four years.
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“This is a major step toward addressing tax avoidance by multinational firms in the global economy and represents a concerted effort to raise standards around the world,” said U.S. Treasury Secretary Jacob Lew. “We must address the persistent issue of ‘stateless income,’ which undermines confidence in our tax system at all levels.”
The main champions of the plan – Germany, Britain, France and Russia – want it adopted by the entire G20 and implemented within two years.
“It’s a matter of justice and fairness that multinational companies pay their fair-share contribution to the public budget,” said Wolfgang Schäuble, Germany’s finance minister. “It’s a matter of legitimacy of a global economy. If we will not have fair burden sharing, at the end we will destroy a global economy.”
