World leaders rubber-stamp tax recoup effort at G20 gabfest

Automatic electronic exchange of tax data is coming


The leaders meeting of the G20 group of nations has endorsed existing approaches to combating international legal-but-naughty tax avoidance schemes.

Tax was on the agenda of the weekend gabfest because most G20 members are painfully aware that their balance sheets don't look great, in part because multinational companies have found ways of shifting profits and taxes around the world.

The G20 Communiqué [PDF] doesn't contain anything startling on the subject, but does say “We are taking actions to ensure the fairness of the international tax system and to secure countries’ revenue bases” and puts into writing the principle that “Profits should be taxed where economic activities deriving the profits are performed and where value is created.”

But there's not a lot of action beyond the approaches identified last May at the International Tax Symposium held in Tokyo.

The headline item from the G20 is the endorsement of the global Common Reporting Standard for the automatic exchange of tax information (AEOI). Members said they “will begin to exchange information automatically with each other and with other countries by 2017 or end-2018, subject to completing necessary legislative procedures.” In other words, once local legislatures sign up. If they do.

There's also acknowledgement of “significant progress on the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan to modernise international tax rules.” The G20 nations “are committed to finalising this work in 2015, including transparency of taxpayer-specific rulings found to constitute harmful tax practices.”

The communiqué also welcomes “progress being made on taxation of patent boxes.” This is a slightly more significant move, as it concerns the practice of registering patents in low-tax jurisdictions. Doing so allows patent-holders to use a nation in which they do very little business as the notional home of their intellectual property. As taxes are paid in places where IP is registered, this is an avoidance regime the G20 is keen to erase.

Another initiative endorsed in the communiqué is for G20 members to give nations beyond that group a helping hand to get ready for AEOI. Australia, for example, will assist The Philippines' in its compliance efforts.

None of the above will have startled long-time G20-watchers, or those concerned with international tax affairs.

But it is important to note that the communiqué and the work that went into it has been going on for months, as the May date of the tax Symposium demonstrates. That means recent revelations about Luxembourg's role in international tax shenanigans were almost certainly not taken into account by negotiators.

The AEOI regime will make it easier to spot who's burying profits where. Now that we know about Luxembourg, future G20 meetings may have more and sterner things to say on this topic.

And even if those efforts are futile, readers in G20 nations have something to smile about: AEOI calls for data exchange among financial institutions and governments, so even if big companies keep slipping the net, there'll be some jobs in the effort to stop them doing so. ®

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