G20 Leaders will tomorrow send a clear signal about their commitment to combat corporate tax avoidance.
Chairman of the Group, Russian President Vladimir Putin has already made this intention clear in his August 28, 2013 Address in advance of this week’s G20 Summit of Heads of Government.
Outlining what he considers to be the accomplishments of the G20 under his leadership, he stated:
“Another major accomplishment includes the work undertaken on reforming tax regulation fighting tax evasion. The G20 Action Plan on Base Erosion and Profit Shifting developed with the support of the OECD can be by all means considered the most prominent step towards modernization and coordination of our countries’ tax policies in a hundred years.”
It is interesting to note less than a month after the G20 Meeting of Finance Ministers and Central Bank Governors endorsed the OECD Action Plan on Base Erosion and Profit Shifting (BEPS); the Plan has been recast as a G20 Action Plan without an alterations or amendments. This despite widespread concerns about the Plan from civil society and the international business community.
The key elements of the G20 BEPS Action Plan are as follows:
- A crackdown on tax regimes found to have too soft an approach to multinationals deploying overseas finance subsidiaries through establishing a new international benchmark for appropriate taxation of controlled foreign companies.
- New mechanisms to fast-track the introduction of OECD recommendations rapidly around the world. And a new approach to measuring the extent to which national tax coffers are being drained by multinationals artificially shifting their profits internationally to lower their tax bills.
- Wider measures to combat predatory tax competition policies emerging in some financially stretched countries, risking a “race to the bottom” climate on tax. The UK’s new so-called “patent box” tax break for intellectual property companies will come under scrutiny.
- A raft of treaty updates to neutralise the tax advantages of complex financial instruments, schemes and structures, including hybrid capital, interest payment deductions and over-capitalisation.
- Tougher rules to block transfers of high-value and mobile “intangible” assets, such as brands and intellectual property rights, to tax havens where there is little or no associated business activity.
- On-line multinationals with extensive warehouse operations in an overseas country, such as Amazon, to be required to pay local tax on any profits arising from sales in that country.
- Multinationals to be forced to disclose to every tax authority a country-by-country breakdown of profits, sales, tax and other measures of economic activity such as headcount.
- A requirement on multinationals to disclose the most aggressive “tax planning” structures to the authorities otherwise often relying on limited, local data that does not show the impact of transnational schemes to lower tax.
It is also expected that the G20 Leaders will formally signal the abandonment of the ‘on request’ standard for exchanging confidential taxpayer information in favour of a new model of international tax co-operation based on automatic exchange of information in accordance with the OECD Multilateral Convention on Mutual assistance in Tax Matters.
Although not yet ratified by the G20, last week China signed the OECD Convention ensuring that at the end of the Summit, President Putin can state that the G20 has accepted the OECD Convention as the exclusive means of ensuring compliance with the new global standard.