The G-20 is stepping up its efforts to corral multinational corporations and their tax avoidance strategies. Recent revelations from Apple and Google on how they duck taxes have sharpened the group’s attention on fixing global tax codes.
Although not at the top of the list of action items, observers say the latest efforts are driven by “tax base erosion and profit shifting” or BEPS, which was listed as the fifth item on the list. The group wants to put a stop to companies that “artificially shift profits out of the countries where they are earned, resulting in very low taxes or even double non-taxation.”
“These practices, if left unchecked, undermine the fairness and integrity of our tax systems,” the G-20 wrote in its Tax Annex to the St. Petersburg G20 Leaders’ Declaration. “They fundamentally distort competition, because businesses that engage in cross-border BEPS strategies gain a competitive advantage compared with enterprises that operate mostly at the domestic level… [W]e must move forward in fighting BEPS practices so that we ensure a fair contribution of all productive sectors to the financing of public spending in our countries.”
The G-20s efforts are certain to complicate the treasurer’s role. That’s because treasury’s responsibility is many times one of tactical processing with the creation of necessary intercompany transactions and monitoring the appropriate flow of funds that sometimes need to follow very specific guidance from the tax department.
Part of bringing its tax goals to fruition is via its proposed Global Forum on Transparency and Exchange of Information for Tax Purposes, which seeks to continue to improve the flow of tax information between countries and to encourage more countries to join the program. The G20 wants the development of a “new global tax standard: to automatic exchange of information.” After a voluntary phase where countries exchanged tax info, the G-20 said it is “now time to migrate to a more ambitious, more efficient and higher standard, which is automatic exchange of information.”
Countries like the US have already been growing the amount of tax treaties with other countries in an effort to stamp out what it basically sees as illegal tax practices – like transfer pricing. MNCs have for years used transfer pricing as a way to price services across a family of entities. As MNCs evolve into global enterprises, compliance with the differing requirements of multiple overlapping tax jurisdictions has become a complicated and expensive task. Add to this new international cooperation among tax authorities, and the pressures to comply become even more intense.
On the bright side, perhaps the coordination of tax policies and information can help companies untangle these overlapping tax laws.