G20 Back Tax Crack-down

The writing seems to be on the wall for large multi-national corporations over payment of taxes and ever more inventive ways to avoid them as the G20 backs moves designed to tighten up. The G8 meeting last month also identified closing tax loopholes and ensuring better exchange of tax information between member states as one of its key goals. The G8 is under the chairmanship of the UK’s Prime Minister, David Cameron, this year. Mr Cameron has set tax as the major priority for the UK presidency and the baton will be taken up next year by Australia as they assume presidency of the G20.

In these economically challenging times, the practices of some large multi-national corporations to minimise their tax burdens (quite legally) has become a political football. Whilst it is illegal to evade paying taxes which are due, tax avoidance is, currently, perfectly legal. It involves taking advantage of the details of tax law to ensure that a company pays the lowest level of tax that it can. The OECD explained that some tax laws were designed as long ago as the 1920s and their intention had been to prevent a corporation from being taxed twice on the same income – double taxation – but they point out that some corporations are now using legal tax loopholes to allow “double non-taxation”. If nations can get their tax demands harmonised and improve information flow between tax authorities, it should mean that such corporations can no longer play one country off against another over taxation and will have to pay a fairer share of their profits.

In response to a G20 request, OECD has devised a plan to improve tax cooperation between nations. The G20 “fully endorses the OECD proposal for a truly global model” of information exchange. The G20 is calling for it to be adopted by all countries and thereby make automatic tax sharing a reality without further delay. They are also proposing to help poorer nations to come on board through capacity building measures which G20 will finance.