Global tax evasion under G20 scrutiny
21 February 2014
Posted by: Author: Bangkok Post
Author: Bangkok Post
US Treasury Secretary Jacob Lew described taxation reform as among the G20's most crucial initiatives Friday, as the world's major economies look to close loopholes used by huge multinational firms.
"Automatic exchange of information has quickly become the new global standard, and I believe that the G20 should continue to provide its full support and encourage all nations to adopt the standard."
His comments follow those of IMF chief Christine Lagarde on Thursday. She called accounting for revenues from new global digitised businesses like Google and Apple a "big ongoing problem and process", and urged governments to radically rethink international tax arrangements.
"Business is evolving," Lagarde said ahead of this weekend's meeting of G20 finance ministers and central bankers in Australia's largest city.
"It's pretty easy to tax a base that is tangible, that is identifiable, where you have manufacturing activity, where you have products and so on," she said.
However, it was "a lot more complicated to do that when the products are intangible, when they move around by flow of information, where the localisation of the headquarters or the service centre is uncertain," she added.
Lagarde said governments and international tax treaty drafters "have to take that into account, and they have to invent new concepts just as quickly and as well as those companies are inventing their optimisation schemes".
Australian Treasurer Joe Hockey said "greater transparency and fairer outcomes in the disclosure of tax liabilities and tax collections" would be a key focus of the weekend talks, particularly the new digital economy.
"I think this needs to be a global solution because ultimately we are dealing with global commerce, and it's about the new digital age," he said.
"Rather than saying it's one company here or one company there or one particular class of product we are now part of the one global marketplace and we're looking for consistent rules, consistent disclosures."
Although there would be exceptions, Hockey said the system ought to be guided by a simple principle: "Where people earn the money they should pay the tax."
The Organisation for Economic Cooperation and Development (OECD) is examining the issue at the request of G20 finance ministers under a project called BEPS, or Base Erosion and Profit Shifting.
OECD chief Angel Gurria said there had been fruitful discussions with business and progress was being made.
He said BEPS was aimed at assuring multinational firms that they were not going to be double-taxed, while ensuring "they understand that they have to contribute, that their fair share has to be put on the table".
"They understand, I think. We were very encouraged by the response we've gotten," said Gurria.
Steve Ciobo, Australia's parliamentary secretary for the economy, said major players in the digital economy were technically not breaking the law by structuring their businesses to minimise tax, and it was time for global action on the issue.
"That's going to be not only beneficial for each of the countries involved, but on a global basis also make a difference," Ciobo said.
Without global collaboration on tax arrangements, Lagarde said countries would be locked in a "race to the bottom" that would ultimately hit ordinary taxpayers who would be "required to fill in the gap that is left by those that can manage to play those games".
This article first appeared on bangkokpost.com.