The G20 has backed afundamental rethink of the rules on taxing multi-national companies, taking aim at loopholes used by firms such as Apple and Google to avoid billions in taxes.
The group of leading economies released an action plan drawn up by the Organisation for Economic Co-operation and Development (OECD) that said the existing system didn’t work, especially when it came to taxing companies that trade online.
“People and companies have to pay the taxes that are due. It’s the only way to operate in a fair and competitive society,” said George Osborne, Britain’s finance minister, at a news conference on the sidelines of a meeting of G20 finance ministers in Moscow.
Large budget deficits and public anger at inter-company structures designed to channel profits into tax havens have prodded governments to act.
Google, Apple, and others say they follow the law wherever they operate and pay what tax is due, but also have a duty to shareholders to organise their affairs in a tax-efficient way.
British business lobby group the CBI said it supported an examination of the loopholes that the OECD said facilitated profit shifting but questioned whether the OECD had “proven serious base erosion and profit shifting issues caused by these structures”.
Mark Nebergall, president of the Software Finance and Tax Executives Council, which represents firms including Microsoft, dismissed the accusations of profit shifting often levelled against his industry and warned there was a risk any OECD action would fall foul of “the law of unintended consequences”.
But Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy, said the existing rules, which date back to the League of Nations in the 1930s, had led to a “golden era” of tax avoidance. He said governments’ frustration with companies’ aggressive tax avoidance provided a “once in a century” opportunity for action.
The OECD has two years to come up with specific measures that can be adopted internationally.
In future, countries may have more rights to ignore contrived inter-company transactions created to shift profits offshore. New rules will seek to put more emphasis on economic substance, the Paris-based think tank said.
Saint-Amans noted all OECD members including Ireland, Switzerland, and the Netherlands, which have been described as tax havens by lawmakers on both sides of the Atlantic, had backed the plan.
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