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 G20 finance ministers agreed to back proposals drawn up by the
Organisation for Economic Co-operation and Development (OECD) which
aim to shake up rules dating back almost a century that govern
taxation of profits from international commerce.
The ministers reached the agreement against a backdrop of concern
about weak economic growth, tight government finances and media
reports on the tax structuring used by companies including Starbucks
and Google that have spurred public anger in Europe and the United
States 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," European Economic Affairs Commissioner Pierre Moscovici told
Reuters.
The practise of so-called Base Erosion and Profit Shifting (BEPS)
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," said Pascal
Saint-Amans, director of the OECD Centre for Tax Policy and
Administration.
The OECD said a conservative estimate of the amount of untaxed money
moved by companies into tax havens was $100 billion to $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.
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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 may
be able to take advantage of this," he added.
The crackdown on corporate tax avoidance has been led by
governments, who asked the OECD to develop the plans.
British Finance Minister George Osborne urged OECD chief Angel
Gurria to put pressure on countries to enact the measures.
"I think he should call out countries that are not implementing what
has been signed up to and hold our feet to the fire," Osborne said
after the meeting of G20 ministers in Lima.
(Additional reporting by Jan Strupczewski and Krista Hughes; Editing
by Meredith Mazzilli)
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