The Group of 20 largest economies is set to back a major overhaul of
international taxation designed to eliminate loopholes that enable many
companies to keep their tax bills low.
The 15-point action plan has been developed by the Organization for Economic Cooperation and Development, and is being discussed by finance ministers from the G-20. They are likely to endorse the plan in a communiqué to be issued at the end of their two-day meeting Saturday in Moscow.
"Our job here is to create a set of tax rules that are fair and equipped for the modern economy," U.K. Chancellor of the Exchequer George Osborne said.
The strategies that multinational corporations use to minimize their tax bills have grabbed headlines in recent months as many governments have stepped up efforts to increase their revenue to cut high budget deficits and debts.
The U.K. Parliament's public-affairs committee has held a number of heated public hearings over the past six months examining whether large companies are paying enough tax. Top executives from Google, GOOG -1.55% Starbucks, SBUX +0.45% and Amazon, AMZN +0.37% as well as representatives from the main accounting firms, have been grilled during hearings.
An investigation by the U.S. Senate has revealed that, through its use of technicalities in Irish and U.S. tax law, Apple has paid little or no corporate taxes on at least $74 billion over the past four years. The investigation found no evidence that Apple did anything illegal.
Apple, Google and Starbucks declined to comment about the new tax plan Friday. Amazon wasn't immediately available to comment.
The plan aims to plug the gaps created by a web of bilateral tax treaties that has expanded since the 1920s, and which now allows for "aggressive" tax planning, where companies adopt legal structures designed to shift their profits to the lowest-tax jurisdictions, regardless of where those profits are earned.
More fundamentally, it seeks to modernize the international tax system to match the increasingly globalized operations of companies, and move away from a system in which tax administrations are largely focused on what happens within national borders.
"These gaps have facilitated tax planning by globalized players," said Pascal Saint-Amans, director of the OECD's Center for Tax Policy and Administration. "The goal of the action plan is to close down the avenues that we have left open."
The plan aims to update rules on how services and goods transferred between units of a company in different countries are priced to reflect the fact that many are now "intangible," in the form of licenses and the use of branding.
The plan also includes steps to widen legislation that allows governments to tax profits that have been shifted to low-tax jurisdictions and to eliminate opportunities for avoiding tax through the use of complex financing structures and the use of contracts to avoid having a taxable presence in a country in which a company operates.
The OECD believes it has the support of all G-20 members. Finance ministers from the U.K., Germany, France and Russia backed the plan at a joint news conference in Moscow on Friday, and it received support later from the U.S.
"This is a major step toward addressing tax avoidance by multinational firms in the global economy and represents a concerted effort to raise standards around the world," said U.S. Treasury Secretary Jacob Lew. "We must address the persistent issue of 'stateless income,' which undermines confidence in our tax system at all levels."
However, the OECD plan papered over differences on how to tax digital companies such as Google, which are mainly based in the U.S. France has argued that digital companies should pay taxes in countries like France because they are using the personal information of their citizens to earn profits.
"I must say, this matters a lot to us," French Finance Minister Pierre Moscovici said Friday. "This is a major challenge."
The U.S. has staunchly opposed that idea, seeing it as a way to grab tax revenue. The final "action plan," as blessed by the U.S., promises only to study the issue further.
Mr. Saint-Amans said it also has the support of OECD members such as the Netherlands and Ireland, countries that are host to many multinational companies seeking to minimize their tax bills.
The Irish government said it welcomed the plan, which it described as "holistic and coordinated."
Ireland has been among a small number of countries that have faced allegations that their tax codes facilitate questionable tax-planning practices of international firms. But the Irish government has vehemently denied that the country can be characterized as a tax haven.
The G-20 is set to back an ambitious, two-year timetable for putting the action plan in place.
The OECD said it has already begun discussions with companies that are likely to be affected by the change in tax rules.
"I have to say we are finding not only a receptive but a cooperative private sector," said Ángel Gurria, the OECD's secretary-general. "Although of course we do not expect them to very happily go there and deposit their more substantive check, I think they will understand that this is a way to keep the systems running better and the trains running on time."
People involved in changing the system expect to encounter heavy lobbying by companies and business groups as the plan is translated into specific rules and legislation. But some academics believe that without public support, businesses will find it difficult to stall the plan.
"The proposed crackdown…reflects a well-known truth: If you do not use your freedom responsibly, it will eventually be curtailed," said Florian Wettstein, professor of business ethics at the University of St. Gallen. "The public increasingly perceives [multinational companies] as hypocritical and untrustworthy, who cannot be trusted must be taken on a short leash."
The plan's backers argue that change needed to persuade individuals to continue to pay their taxes to maintain public support for the globalized economy, which is based on free trade and investment.
"It's a matter of justice and fairness that multinational companies pay their fair-share contribution to the public budget," said Wolfgang Schäuble, Germany's finance minister. "It's a matter of legitimacy of a global economy. If we will not have fair burden sharing, at the end we will destroy a global economy."
Tax experts warned that the OECD's action plan will be difficult to implement.
"Notwithstanding the fact that the G-20 leaders are far from united on how to proceed, any global reforms will have to be brought in through changes between countries on a bilateral basis…and also amend existing domestic laws," said Sandy Bhogal, head of tax at international law firm Mayer Brown "This process will take a considerable amount of time, even with the cooperation of all the relevant parties."
The 15-point action plan has been developed by the Organization for Economic Cooperation and Development, and is being discussed by finance ministers from the G-20. They are likely to endorse the plan in a communiqué to be issued at the end of their two-day meeting Saturday in Moscow.
"Our job here is to create a set of tax rules that are fair and equipped for the modern economy," U.K. Chancellor of the Exchequer George Osborne said.
The strategies that multinational corporations use to minimize their tax bills have grabbed headlines in recent months as many governments have stepped up efforts to increase their revenue to cut high budget deficits and debts.
The U.K. Parliament's public-affairs committee has held a number of heated public hearings over the past six months examining whether large companies are paying enough tax. Top executives from Google, GOOG -1.55% Starbucks, SBUX +0.45% and Amazon, AMZN +0.37% as well as representatives from the main accounting firms, have been grilled during hearings.
An investigation by the U.S. Senate has revealed that, through its use of technicalities in Irish and U.S. tax law, Apple has paid little or no corporate taxes on at least $74 billion over the past four years. The investigation found no evidence that Apple did anything illegal.
Apple, Google and Starbucks declined to comment about the new tax plan Friday. Amazon wasn't immediately available to comment.
The plan aims to plug the gaps created by a web of bilateral tax treaties that has expanded since the 1920s, and which now allows for "aggressive" tax planning, where companies adopt legal structures designed to shift their profits to the lowest-tax jurisdictions, regardless of where those profits are earned.
More fundamentally, it seeks to modernize the international tax system to match the increasingly globalized operations of companies, and move away from a system in which tax administrations are largely focused on what happens within national borders.
"These gaps have facilitated tax planning by globalized players," said Pascal Saint-Amans, director of the OECD's Center for Tax Policy and Administration. "The goal of the action plan is to close down the avenues that we have left open."
The plan aims to update rules on how services and goods transferred between units of a company in different countries are priced to reflect the fact that many are now "intangible," in the form of licenses and the use of branding.
The plan also includes steps to widen legislation that allows governments to tax profits that have been shifted to low-tax jurisdictions and to eliminate opportunities for avoiding tax through the use of complex financing structures and the use of contracts to avoid having a taxable presence in a country in which a company operates.
The OECD believes it has the support of all G-20 members. Finance ministers from the U.K., Germany, France and Russia backed the plan at a joint news conference in Moscow on Friday, and it received support later from the U.S.
"This is a major step toward addressing tax avoidance by multinational firms in the global economy and represents a concerted effort to raise standards around the world," said U.S. Treasury Secretary Jacob Lew. "We must address the persistent issue of 'stateless income,' which undermines confidence in our tax system at all levels."
However, the OECD plan papered over differences on how to tax digital companies such as Google, which are mainly based in the U.S. France has argued that digital companies should pay taxes in countries like France because they are using the personal information of their citizens to earn profits.
"I must say, this matters a lot to us," French Finance Minister Pierre Moscovici said Friday. "This is a major challenge."
The U.S. has staunchly opposed that idea, seeing it as a way to grab tax revenue. The final "action plan," as blessed by the U.S., promises only to study the issue further.
Mr. Saint-Amans said it also has the support of OECD members such as the Netherlands and Ireland, countries that are host to many multinational companies seeking to minimize their tax bills.
The Irish government said it welcomed the plan, which it described as "holistic and coordinated."
Ireland has been among a small number of countries that have faced allegations that their tax codes facilitate questionable tax-planning practices of international firms. But the Irish government has vehemently denied that the country can be characterized as a tax haven.
The G-20 is set to back an ambitious, two-year timetable for putting the action plan in place.
The OECD said it has already begun discussions with companies that are likely to be affected by the change in tax rules.
"I have to say we are finding not only a receptive but a cooperative private sector," said Ángel Gurria, the OECD's secretary-general. "Although of course we do not expect them to very happily go there and deposit their more substantive check, I think they will understand that this is a way to keep the systems running better and the trains running on time."
People involved in changing the system expect to encounter heavy lobbying by companies and business groups as the plan is translated into specific rules and legislation. But some academics believe that without public support, businesses will find it difficult to stall the plan.
"The proposed crackdown…reflects a well-known truth: If you do not use your freedom responsibly, it will eventually be curtailed," said Florian Wettstein, professor of business ethics at the University of St. Gallen. "The public increasingly perceives [multinational companies] as hypocritical and untrustworthy, who cannot be trusted must be taken on a short leash."
The plan's backers argue that change needed to persuade individuals to continue to pay their taxes to maintain public support for the globalized economy, which is based on free trade and investment.
"It's a matter of justice and fairness that multinational companies pay their fair-share contribution to the public budget," said Wolfgang Schäuble, Germany's finance minister. "It's a matter of legitimacy of a global economy. If we will not have fair burden sharing, at the end we will destroy a global economy."
Tax experts warned that the OECD's action plan will be difficult to implement.
"Notwithstanding the fact that the G-20 leaders are far from united on how to proceed, any global reforms will have to be brought in through changes between countries on a bilateral basis…and also amend existing domestic laws," said Sandy Bhogal, head of tax at international law firm Mayer Brown "This process will take a considerable amount of time, even with the cooperation of all the relevant parties."