Sun, Jul 24, 2016 - Page 16 News List

G20 ministers urge tighter tax rules for firms

PROFIT SHIFTING:A major focus at the meeting was on addressing companies using accounting methods to shift their profits to jurisdictions that have low or no taxes


German Federal Minister of Finance Wolfgang Schaeuble, left, chats with British Chancellor of the Exchequer Philip Hammond before a private lunch on the sidelines of the G20 High-Level Tax Symposium in Chengdu, China, yesterday.

Photo: AP

The world’s major economies need to deepen cooperation on tax collection and information sharing as companies seek to minimize the amount they pay to governments, finance ministers said yesterday.

The issue has become controversial in many countries, with multinational firms from Google to Starbucks Corp facing accusations of not contributing appropriately to the economies where they make their money and US multibillion-dollar merger proposals being partly driven by tax considerations.

“When the current cross-border tax rules were developed, they were tied to concepts that reflected geography and national boundaries,” US Secretary of the Treasury Jack Lew told a meeting of G20 finance ministers.

“When we look at technology, a lot of that has become harder to define,” he said.

“There needs to be a common standard across countries on important issues of transfer pricing,” he said at a high-level symposium on tax policy, adding that countries had to deal “collectively” with issues that lead to non-taxation.

Closing loopholes would change the choices businesses make, he added.

The G20 has previously supported proposals requiring authorities to share the identities of shell companies’ real owners and backed creating a blacklist of international tax havens that do not cooperate with information-sharing programs.

However, the discussion as the G20 finance ministers and central bank chiefs meeting opened was wider, addressing base erosion and profit shifting, which refers to companies using accounting techniques to shift their profits to low or no-tax jurisdictions, reducing the amounts they are liable to pay.

Some countries, such as Ireland or Luxembourg, have drawn major firms to establish headquarters or subsidiaries by virtue of their tax rules — a key contributor to Dublin earlier this month declaring that its economy grew by a spectacular 26.3 percent last year.

“In the 21st century, talent, capital and even physical infrastructures are increasingly mobile,” Organisation for Economic Co-operation and Development (OECD) secretary-general Angel Gurria said.

“So, a global conversation on these issues, on tax policy, is obvious, critical, important,” he said.

However, he acknowledged that it could be a sensitive subject.

“Tax policy has been and remains a sovereign issue,” he said.

The seminar — jointly pushed for by Germany, China and the OECD — also addressed issues of using tax policy to promote growth.

French Minister of Finance Michel Sapin told reporters that some countries, “not only China” were “reluctant” on questions of cooperation on tax evasion.

However, Chinese Minister of Finance Lou Jiwei (樓繼偉) said: “We need to deepen the international tax cooperation, building on existing mechanisms.”

While China has demonstrated commitment to moving toward a market-driven exchange rate, a senior US Treasury official said on the sidelines of the meeting that a key test would be whether the yuan is allowed to appreciate in value in response to market pressures.

“They have been exercising policy in a way that has been more clear than it was even a year ago. That’s an important step,” the official said, adding that China in recent months had intervened in currency markets to keep the yuan from falling.

The official said that China also needed to tackle “corrosive” industrial overcapacity, reform state-owned enterprises and allow competition into its markets, along with other steps to accelerate its transition to a more consumer-driven economy.

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