MEXICO CITY Britain and Germany are leading a push in the Group of 20 economic powers to make multinational companies pay their "fair share" of taxes following reports of large firms exploiting loopholes to avoid taxes.
British Finance Minister George Osborne said at a G20 meeting in Mexico City on Monday that discussions showed there was "widespread support" for the joint initiative.
"We want to make sure that we are successful economies which are the home of international businesses but that international business pay the taxes that we expect them to pay," Osborne told a news conference with German Finance Minister Wolfgang Schaeuble.
The two men said international tax standards have struggled to keep up with changes in global business practices and that some companies have been able to shift taxation of their profits away from where they are generated.
In October, a Reuters report showed Starbucks had legally lowered its UK tax bill with inter-company loans, paying royalty fees to foreign subsidiaries and allocating money made in the UK to other units in so-called "transfer pricing".
In other recent reports, companies including Apple have come under scrutiny for their approach to paying taxes.
A German finance ministry spokesman said France was backing the drive, which Germany and Britain plan to push forward during Russia's presidency of the G20 next year. Another EU official said the initiative was a joint G20 undertaking.
Schaeuble said it complemented efforts to crack down on tax dodgers and he was hopeful it would get a "lot of support". It was vital for repairing the global economy, he added.
"It's obvious that if we want to regulate financial markets better and generate sustained global growth, then we need to ensure that the tax basis isn't eroded," Schaeuble said.
Osborne said the Organisation for Economic Co-operation and Development (OECD) would investigate the matter and present an initial report on its findings at a G20 meeting in Russia in February.
British Prime Minister David Cameron said last month he was unhappy with the level of tax avoidance by big companies.
Opportunities abound for corporations to cut tax costs, usually in legal ways, through careful management of cross-border flows of goods, services and capital among subsidiaries in different countries. International standards urge multinationals to price such dealings at near market levels.
But by under-charging or over-charging one unit in a transaction with another unit, for instance, profits can be shifted from a high-tax jurisdiction to a low-tax one. This is especially true for companies with valuable intellectual capital that can easily be moved between jurisdictions.
Nevertheless, as western powers struggle to cut ballooning budget deficits sparked by the financial crisis, governments looking for ways to improve their tax revenues and are coming down harder on tax avoidance and the evasion of taxes.
A U.S. Senate investigative panel in September said technology groups Microsoft Corp and Hewlett-Packard Co used offshore units and loopholes to shield billions of dollars in profits from U.S. tax authorities. The panel called tax avoidance rampant in the technology sector. HP and Microsoft denied any wrongdoing and noted that tax authorities had not objected to the strategies used by the companies.
U.S. tax authorities have tried for years to combat abusive forms of "transfer pricing." The Internal Revenue Service has struggled to keep pace with sophisticated and highly paid corporate tax lawyers and accountants.
The IRS said in March that transfer pricing was one of two top concerns being reported to the agency by corporations disclosing tax positions that worried them.
The Supreme Court of Canada last month issued its first ruling in a transfer pricing case, handing a victory to GlaxoSmithKline Plc in a case centered on whether the UK drugmaker charged its Canadian unit excessive prices for ingredients to avoid Canadian taxes.