Leading economies agree plan to fight corporate tax avoidance

LIMA (Reuters) - The Group of 20 major economies have endorsed a package of measures to tackle corporate tax avoidance, but questions remain about whether countries will follow through on the plans or leave loopholes multinationals can exploit.

G20 finance ministers agreed to back proposals drawn up by the Organisation for Economic Co-operation and Development (OECD) which aim to shake up rules dating back almost a century that govern taxation of profits from international commerce.

The ministers reached the agreement against a backdrop of concern about weak economic growth, tight government finances and media reports on the tax structuring used by companies including Starbucks and Google that have spurred public anger in Europe and the United States in recent years over tax avoidance.

“This is a reaction of people who cannot stand anymore that they pay their fair share of taxes, that they contribute to fiscal consolidation while companies, especially multinationals, can avoid tax,” European Economic Affairs Commissioner Pierre Moscovici told Reuters.

The practise of so-called Base Erosion and Profit Shifting (BEPS) has allowed companies to move profits out of the countries where money is earned and into jurisdictions such as Luxembourg, Ireland or Bermuda that do not tax them.

The agreement endorsed by the G20 ministers late on Thursday aims to close the gaps in existing international rules.

The plans include provisions to give governments a global picture of the operations of multinational companies, and minimum standards on so-called “treaty shopping” to put an end to the use of conduit companies to channel investments.

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“The challenge is consistent implementation,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration.

The OECD said a conservative estimate of the amount of untaxed money moved by companies into tax havens was $100 billion to $240 billion annually, suggesting tens of billions of dollars in lost tax revenue.

Technology companies are seen as the most adept at exploiting loopholes, but drug makers, medical device groups, banks, fast food groups and retailers all commonly use contrived arrangements to cut their tax bills.

Tax advisers agree the measures could force many companies to restructure their operations and rethink how they fund themselves.

However, multinational enterprises (MNEs) will try to exert influence over the way the plans are implemented.

“The implementation phase now starts and MNEs and their advisers will have to continue to make their voice heard in the implementation phase to limit negative impacts on business,” said Keith O’Donnell, board member at Taxand, which provides tax advice to multinational businesses.

(L-R) French Finance Minister Michel Sapin, Mexico's Finance Minister Luis Videgaray, Britain's Chancellor of the Exchequer George Osborne, China's Finance Minister Lou Jiwei and Organisation for Economic Co-operation and Development (OECD) Secretary-General Angel Gurria attend a Finance Ministers and Central Bank Governors of the G20 group news conference at the 2015 IMF/World Bank Annual Meetings in Lima, Peru, October 9, 2015. REUTERS/Mariana Bazo

“If certain states don’t implement or implement partially, MNEs may be able to take advantage of this,” he added.

The crackdown on corporate tax avoidance has been led by governments, who asked the OECD to develop the plans.

British Finance Minister George Osborne urged OECD chief Angel Gurria to put pressure on countries to enact the measures.

“I think he should call out countries that are not implementing what has been signed up to and hold our feet to the fire,” Osborne said after the meeting of G20 ministers in Lima.

Additional reporting by Jan Strupczewski and Krista Hughes; Editing by Meredith Mazzilli