Rich nations to tackle tax loopholes; multinationals eyed

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SYDNEY: US Treasury Secretary Jacob Lew on Friday described taxation reform as among the Group of 20’s most crucial initiatives, as the world’s major economies look to close loopholes used by huge multinational firms.

“The G20’s work on tax cooperation is among our most important new initiatives,” he said in Sydney, backing the need for tax harmonization.

“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,” Lew said.

His comments follow those of International Monetary Fund chief Christine Lagarde on Thursday. She called accounting for revenues from new global digitized 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 localization of the headquarters or the service center is uncertain,” she added.

Lagarde said that 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 optimization schemes.”

Australian Treasurer Joe Hockey said that “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,” Hockey added.

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 Organization 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 that there had been fruitful discussions with business and progress was being made.

He said that 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.

AFP

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