The G20 has backed an action plan from the OECD that would fundamentally rejig international rules on taxation.
Major multinationals like Google, Apple and Amazon have excused their legal tax-dodging antics by shrugging their shoulders and telling governments that if they don't like it, they'll have to change the rules, and the OECD agrees.
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“International tax rules, many of them dating from the 1920s, ensure that businesses don’t pay taxes in two countries – double taxation," OECD Secretary-General Angel Gurría said. "This is laudable, but unfortunately these rules are now being abused to permit double non-taxation. The Action Plan aims to remedy this, so multinationals also pay their fair share of taxes.”
French finance minister Pierre Moscovici told a news conference on the sidelines of a meeting of G20 finance officials that the plan was "a major breakthrough and is at the heart of the social contract", according to Reuters. Meanwhile the Wall Street Journal reported George Osborne, chancellor of the exchequer in the UK, as saying that he hoped that the G20 countries would back the plan.
"Our job here is to create a set of tax rules that are fair and equipped for the modern economy," he said.
Modern companies, especially globalised online firms, have been able to use the older laws and treaties (designed to stop companies that expand from having to pay tax on the same profits in different countries) to create loopholes through which to move their profits to low or non-existent tax jurisdictions.
The OECD said that its 15-point action plan would close the gaps that allowed income to "disappear" for tax purposes and impose stronger rules that would allow countries to tax profits stashed in offshore subsidiaries.
"Domestic and international tax rules should relate to both income and the economic activity that generates it. Existing tax treaty and transfer pricing rules can, in some cases, facilitate the separation of taxable profits from the value-creating activities that generate them," the OECD said.
"The Action Plan will restore the intended effects of these standards by aligning tax with substance – ensuring that taxable profits cannot be artificially shifted, through the transfer of intangibles (e.g. patents or copyrights), risks or capital away from countries where the value is created."
Following the plan gives the think-tank and the G20 up to two years to come up with specific rules to be adopted internationally.
Gurria said that the OECD was finding the private sector "not only receptive, but cooperative".
The Confederation of British Industry said that it agreed that tax laws were outdated, but the OECD and the G20 needed to ensure that any new laws were adopted by everyone.
"We support the reform of areas of international taxation which can cause confusion about where tax should be allocated and risk multiple or no taxation, but this must be coordinated internationally so UK firms are not disadvantaged," chief policy adviser Katja Hall said. ®