The Group of 20 world leaders issued a declaration last week calling for a crackdown on cross-border tax evasion.
On the heels of the G20 meeting last Thursday and Friday in St. Petersburg, Russia, the G20 leaders issued a declaration covering a range of economic, financial, environmental, sustainability and anti-corruption issues, along with a “tax annex” document spelling out the details of its declaration, including the automatic exchange of tax information by countries by the end of 2015.
“Cross-border tax evasion and avoidance undermine our public finances and our people’s trust in the fairness of the tax system,” said the declaration. “Today, we endorsed plans to address these problems and committed to take steps to change our rules to tackle tax avoidance, harmful practices and aggressive tax planning.”
Some of the measures address the problems of base erosion and profit shifting, or BEPS for short, by multinational corporations and endorse an action plan released in July by the Organization for Economic Cooperation and Development (see Governments to Pursue Action Plan to Address Multinational Tax Avoidance).
“In a context of severe fiscal consolidation and social hardship, in many countries ensuring that all taxpayers pay their fair share of taxes is more than ever a priority,” said the declaration. “Tax avoidance, harmful practices and aggressive tax planning have to be tackled. The growth of the digital economy also poses challenges for international taxation. We fully endorse the ambitious and comprehensive action plan originated in the OECD aimed at addressing base erosion and profit shifting with mechanism to enrich the plan as appropriate. We welcome the establishment of the G20/OECD BEPS project and we encourage all interested countries to participate. Profits should be taxed where economic activities deriving the profits are performed and where value is created. In order to minimize BEPS, we call on member countries to examine how our own domestic laws contribute to BEPS and to ensure that international and our own tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.”
The G20 leaders acknowledged that effective taxation of mobile income is one of the key challenges and said it fully supported the OECD's work with G20 countries aimed at presenting a new single global standard for automatic exchange of information by February 2014 and to finalizing technical modalities of effective automatic exchange by mid-2014. “In parallel, we expect to begin to exchange information automatically on tax matters among G20 members by the end of 2015,” they added.
The G20 plan drew mixed reactions. Keith O’Donnell, the global real estate leader at Taxand, a global organization of specialist tax advisors to multinational businesses, and managing partner of the Luxembourg advisory firm Atoz, noted, “Whilst a number of the proposals—particularly those simplifying procedures for multinationals—should be welcomed, substantial questions remain over the nature of the BEPS initiative and its outcomes. Perhaps the most fundamental question is around who will be driving the reform, particularly if it is to be a truly global project. A number of the G20 constituents, including large, developing economies such as Argentina, China and Brazil, are not members of the OECD. There is therefore substantial risk that the OECD will lack the firepower to harness and control the G20 on this issue and implementation will undoubtedly be a nightmare issue further down the line.”
Global Financial Integrity, a group that advocates for more transparency in the international tax system, applauded the G20’s commitment to exchange tax information automatically by the end of 2015 and its historic crackdown on tax evasion, but said its plan failed to tackle anonymous shell companies. GFI also welcomed the commitment by world leaders to assist low-income countries’ effort to additionally ensure their eventual participation in the automatic exchange of tax information. However, the Washington, D.C.-based research and advocacy group expressed disappointment in the G20 declaration’s omission of a timeframe to include developing countries in such a system.
“This is a major advancement in the battle against tax evasion,” said Heather Lowe, GFI’s legal counsel and director of government affairs, in a statement. “Four or five years ago, the idea of automatically exchanging tax information wasn’t even on the table. Now, the twenty largest economies in the world have announced that they will begin sharing information automatically within two to three years. This is really a sea change.”
“That said, there are more countries in the world,” Lowe continued. “The G20 today committed to extending automatic exchange of information to developing countries and the creation of a multilateral treaty to achieve this. The G20 must commit to including developing countries in the committee tasked with drafting the treaty, ensuring that its terms are both beneficial to and implementable by developing countries. This commitment can’t wait until the next finance minister’s meeting in February.”
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