G20 economies to tackle corporate tax avoidance
G20 finance ministers have endorsed a package of measures to tackle corporate tax avoidance, but questions remain about whether certain countries will follow through on the plans or leave loopholes multinationals can exploit.
The ministers agreed to back proposals drawn up by the OECD, which aim to shake up rules dating back almost a century that govern taxation of profits from international commerce.
The agreement was reached against a backdrop of concern about weak economic growth, tight government finances and media reports on the tax structuring used by companies including Starbucks Corp and Google Inc that have spurred public anger in Europe and the US in recent years over tax avoidance.
“This is a reaction of people who cannot stand anymore that they pay their fair share of taxes, that they contribute to fiscal consolidation while companies, especially multinationals, can avoid tax,” EU Commissioner for Economic and Financial Affairs, Taxation and Custom Pierre Moscovici said.
The practice of so-called Base Erosion and Profit Shifting has allowed companies to move profits out of the countries where money is earned and into jurisdictions such as Luxembourg, Ireland or Bermuda that do not tax them.
The agreement, endorsed by the G20 ministers late on Thursday, aims to close the gaps in existing international rules.
The plans include provisions to give governments a global picture of the operations of multinational companies, and minimum standards on so-called “treaty shopping” to put an end to the use of conduit companies to channel investments.
“The challenge is consistent implementation,” OECD Centre for Tax Policy and Administration director Pascal Saint-Amans said.
The OECD said a conservative estimate of the amount of untaxed money moved by companies into tax havens was between US$100 billion and US$240 billion annually, suggesting tens of billions of dollars in lost tax revenue.
Technology companies are seen as the most adept at exploiting loopholes, but drug makers, medical device groups, banks, fast food groups and retailers all commonly use contrived arrangements to cut their tax bills.
Tax advisers agree the measures could force many companies to restructure their operations and rethink how they fund themselves.
However, multinational enterprises (MNEs) will try to exert influence over the way the plans are implemented.
“The implementation phase now starts and MNEs and their advisers will have to continue to make their voice heard in the implementation phase to limit negative impacts on business,” said Keith O’Donnell, board member at Taxand, which provides tax advice to multinational businesses.
“If certain states don’t implement or implement partially, MNEs might be able to take advantage of this,” he said.
