G20 urges action on corporate tax

Ireland’s 12.5 per cent corporation tax regime will come under further pressure after the G20 agreed at the weekend to develop stricter rules on cross-border taxation to close loopholes that have allowed multinationals such as Starbucks, Google, Apple and Amazon to avoid paying taxes.

The Group of 20 endorsed a set of common standards for sharing bank account information across borders, with automatic exchange of information among its members to take effect by the end of 2015. “Some multinational companies aren’t paying their fair share of tax anywhere,” Australian finance minister Joe Hockey, who hosted the meeting of G20 finance ministers and central bankers in Sydney, said at the close of the gathering. “We want a global response.”

Profit shifting
Reports of profit shifting by companies away from high tax countries to more relaxed tax regimes have sparked public inquiries in the United States, Britain and elsewhere.

Ireland is one of a number of locations used by multinationals as part of their tax planning and many, such as Google and Facebook, have their European head offices here. Ireland is not a member of the G20 and Quentin Grafton, a professor of economics at the Australian National University in Canberra warned that achieving a global standard would be difficult.

“This is a win-lose proposition, so that makes it a difficult proposition,” he said. “Those countries that will lose out will try and oppose it.” Prof Grafton said the OECD has been trying for more than a decade to bring about tax reform and the next test would come in September when it reports on planned actions.

Global tax evasion could be costing more than $3 trillion a year, according to researchers from Tax Justice Network, while as much as $32 trillion – twice the size of the US gross domestic product – could be stashed away in tax havens. Tightening tax loopholes has gained urgency in the aftermath of the global financial crisis when developed nations’ efforts to avert economic meltdown left them with gaping budget holes and record debt.

Deal signed
The push on tax reform at the Sydney G20 meeting was firmly backed as Australia and the United States signed a deal on the eve of the meeting under the US Foreign Account Tax Compliance Act that targets "non-compliant" taxpayers using foreign bank accounts.

Tightening the tax rules would prevent so-called base erosion and profit shifting by multinationals that exploit gaps and mismatches in national tax rules to make profits “disappear” from high tax regimes and shift to low tax locations.

French finance minister Pierre Moscovici said he intended to make Europe a leader in such efforts, with France ready to sign agreements with Germany, Italy, Spain and Britain, within the next few weeks.