G20 Finance Ministers Promise Action on Corporate Tax and no Currency War at Moscow Gathering
Finance ministers from the Group of 20 (G20) major world economies meeting in Moscow at the weekend have promised a concerted effort to force multinational corporations (MNCs) to pay their fair share of tax and halt the schemes used by some treasuries to minimise their payments.
The effort is being headed by three finance ministers: UK chancellor, George Osborne, France’s Pierre Moscovici and Germany’s Wolfgang Schaeuble, who called for internationally-coordinated action to clamp down on the practice of shifting profits from a company’s home country in order to pay less tax under another jurisdiction.
The UK is particularly keen to clamp down after the Starbucks furore, whereby the coffee chain paid on UK corporation tax for well over a decade.
Osborne said that the global taxation system had been guided by principles originally established by the League of Nations back in the 1920s and few revisions had been made since then. “We want businesses to pay the taxes that we set in our countries – and that cannot be achieved by one country alone,” he declared.
A communique issued from the G20 meeting in Moscow said that members were determined to develop measures to prevent “base erosion and profit sharing” and also pledged that they would refrain from seeking economic advantage from devaluing their currencies amid growing fears of a new so-called ‘currency war’.
The crackdown on corporate tax avoidance is backed by a study by the Organisation for Cooperation and Economic Development (OECD) on the consequences of profit shifting. The organisation will present a comprehensive action plan to the next G20 meeting in July.
“We are talking about something that is fundamentally legal. We need to modify the law,” said the OECD secretary general Angel Gurria. “Avoiding double taxation has become a way of having double non-taxation.”
“No single country can go by itself,” he said at a news conference in Moscow, stressing that the anti-avoidance initiative was not aimed at ‘bashing’ any individual MNC. Companies that have recently been singled out for criticism include coffee chain Starbucks, Amazon and Google.
There was also no criticism of recent looser monetary policies introduced by Japan’s government and central bank, which have driven down the value of the yen and helped the country’s exporters.
The OECD action plan to be presented to the G20 in July will be formulated with the help of three committees. The UK will chair a committee examining transfer pricing, used by MNCs to calculate the payments passed between their subsidiaries in different countries so that they can shift profits from high-tax jurisdictions to lower-tax ones.
Germany will head a panel reviewing ways in which companies have reduced their tax base – their taxable income and assets. France and the US will jointly tackle the issue of identifying the correct tax jurisdiction for business activities such electronic commerce (e-commerce).