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Germany, France, UK: big firms must pay tax

Published: 16 Feb 2013 12:41 GMT+01:00

Germany's Wolfgang Schäuble, Britain's George Osborne and France's Pierre Moscovici said it was time for internationally-coordinated action to clamp down on the practice of shifting profits from the company's home country to pay less tax under another jurisdiction.

The drive -- which is backed by a study by the Organisation for Cooperation and Economic Development (OECD) on the consequences of the so-called profit shifting -- comes as cash-strapped governments try to use every means to inject new funds into their budgets.

"We are talking about something that is fundamentally legal. We need to modify the law," admitted the OECD secretary general Angel Gurria.

"Avoiding double taxation has become a way of having double non-taxation."

"No single country can go by itself," he said at a news conference on the sidelines of the G20 finance ministers' meeting in Moscow, insisting that the drive was not aimed at "bashing" individual corporate giants.

Schäuble said it was "unfair that multinational companies should be able to use globalisation as a tool" not to pay their fair share of taxes while Moscovici described the issue as a "matter of fairness for our citizens".

Osborne said that current global tax rules had been developed almost 100 years ago -- along principles set out by the League of Nations in the 1920s -- and few changes had been made since then.

"This means that the tax system does not reflect how international companies do business."

"We want businesses to pay the taxes that we set in our countries. And this cannot be achieved by one country alone. No one country can create an international tax system by itself."

The ministers emphasised that their proposal was supported by the Russian presidency of the G20.

Online retailer Amazon, Internet giant Google as well as coffee shop chain Starbucks have been under the spotlight for their tax strategies in Britain and other EU countries in recent months.

Starbucks came under particular pressure in Britain following the revelation last year that it has paid just £8.6 million ($13.8 million) in British corporation tax since 1998, despite generating £3 billion in revenues.

It has now pledged to voluntarily pay back millions in extra tax.

A person familiar with the OECD's report said it was essential to move rapidly, especially with the United States apparently not sharing Europe's wholehearted enthusiasm for the anti-tax avoidance drive.

"The timetable is going to be very tight -- otherwise the (OECD) report will be buried," the person said.

According to the OECD, some multinational companies use avoidance strategies that allow them to pay just five percent in corporate taxes while smaller businesses are paying 30 percent.

It says that practices have become more aggressive in the past decade, with some multinationals creating offshore subsidiaries or shell companies and taking advantage of the tax breaks offered in the countries where these are registered.

This has led to absurdities like the tax havens of Barbados, Bermuda and the British Virgin Islands in 2010 together receiving together more foreign direct investment than either Germany or Japan, the OECD said.

In 2010, the creation of offshores meant the British Virgin Islands was the second largest investor in China, it noted.

The three EU states and the OECD warned that it would be smaller businesses that paid their taxes in full who risked bearing the brunt of the multinationals' complex schemes to avoid tax.

"In times of difficulty when you need to increase revenues, when the large multinationals are not making a contribution, you go for (taxes from) the small and medium enterprises or the middle classes," said Gurria.

"This is something that is quite undesirable."

AFP/hc

The Local (news@thelocal.de)

Your comments about this article

14:45 February 16, 2013 by pepsionice
If you make a Euro in Germany, then a percentage of that one single Euro....ought to be taxed...end of the story. The idea that you'd claim some international status to avoid taxes....is a joke.

The flip slide of this...you need to think and be logical about this whole tax system, not FAIR. An individual ought to be paying a percentage as well. And at the end of this mess....the country is left with one single bucket of money, and no matter how much you'd like to do....you can only do things with the money in that bucket. If you have enough to buy everyone a magic unicorn, great. My guess is....you really don't have that big of a bucket and you ought to be smart on expenditures.
15:22 February 16, 2013 by ChrisRea
"If you make a Euro in Germany, then a percentage of that one single Euro....ought to be taxed" - True. The issue however is that it is not that easy to draw the line. If a German company buys 1000 shirts at a fair in Switzerland, does that mean that the associated profit is made in Germany? Probably not. Imagine that instead of shirts, the German company buys at the same fair consulting services. Or copyright limited in time.

This is why it is important that governments work together to solve the issue. Ideally, we should have only one tax system across Europe. It would be even better if we would also share a common social (unemployment, rent) and health treatment system. But it is a long way until far away ...
16:10 February 16, 2013 by IchBinKönig
Why is it that when the Government fails us, there are those of you that suggest the Government therefore deserves MORE money and MORE power? You all remind me of my time in Bolivia.
19:39 February 16, 2013 by neunElf
"This is why it is important that governments work together to solve the issue. Ideally, we should have only one tax system across Europe. It would be even better if we would also share a common social (unemployment, rent) and health treatment system. But it is a long way until far away ... "

Ah that's it! Not enough government in Europe is the source of all of our problems!
20:57 February 16, 2013 by ChrisRea
Governments already have the power. If they manage to agree on a common tax approach (or common social&health systems), they actually give away the power to change it as they want (and when they want). So it means less government and more common sense.
21:59 February 16, 2013 by IchBinKönig
Ah. So just centralize the Government in Belgium. Enough with this local Democracy. Eradication of local Representation in favor of Elites from far away = Smaller Government. brilliant. And if Governments already have the power, why do you support them taking more?
22:44 February 16, 2013 by ChrisRea
If the taxes would be the same, it would not make sense to shift the profits. It is the same with social & health systems - it would not make sense to move to another country because it pays better unemployment money (or minimum income money). It has nothing to do with favouring elites or giving governments more power (where did you actually get this idea from?). On the contrary, it would force large corporations to pay taxes like the small entrepreneurs.
00:37 February 17, 2013 by Tonne
Why are companies and corporations not taxed on their turnover or sales in a country, rather than on their profits, which can be declared in a suitable tax haven?

As individuals we are taxed on our gross income. Why should the same not apply to companies?
02:36 February 17, 2013 by wethepeople2012
What's not fair is to change the rules "after" a company sets up shop. Every company should pack up and leave before paying 1 euro "more" tax. Just goes to show what lengths governments will go when world economies are struggling. Next Germany will want all their gold back...lol or someone might actually try to pass off horsemeat as beef to save a euro.
10:53 February 17, 2013 by zeddriver
@ Tonne.Per your post

"As individuals we are taxed on our gross income. Why should the same not apply to companies?"

Really? Where are you from? If I may ask.

Being from America. The system is a little different. We are allowed certain deductions from our gross income. Such as charitable donations, The interest on a Home mortgage. And other taxes that one pays. Like state income tax. And this is good. As it encourages charitable giving. And home ownership.

I think that the POLITICIANS & THEIR GOVERNMENTS and not the companies are the ones to blame. They (politicians) are the ones that set up those laws allowing those loopholes. Yes! The companies put money in the pockets of the politicians. Yet! The politicians were freely holding their pockets open asking for contributions (bribes). The politicians made the favorable laws after getting said monies. And now they are complaining. Why should anyone trust any politician to fix the problem when they were the ones that created the problem in the first place. No. The ONLY reason the politicians are complaining is that they are addicted to other peoples money. And then they will use others monies to buy your votes through entitlements.

Of course drastically changing the tax laws is not free of risk. Most folk who put away money through their employer for retirement are invested in said companies. A drastic tax change would have the net result of lowering profits and thus the value of a companies stock price. Which will hurt your investments. Not to mention. people would most likely lose jobs as well.
17:47 February 17, 2013 by ChrisRea
@ Tonne

I guess you do not earn income in Germany, otherwise you would probably know that income tax is applied on the net income, after you deduct everything you are entitled to.

@ wethepeople2012

According to your logic, no change in tax is fair, as there will always be companies that were already set up before any tax change.
18:19 February 17, 2013 by wethepeople2012
This all boils down to everyone putting their hands in my pocket and me fighting to keep their hands out. I will die fighting to keep their hands out!
17:22 February 18, 2013 by Rule723
I think that if Governments would stop trying to be everything to the people, they would not have such a need to tax. Governments should provide only the basic services on a grand scale, such as military for defense, and regulating commerce (not dictating, rather settling disputes among localities). It is all of the social programs that are creating the issues.

Since the companies are enticed to enter a market through the tax policy, blaming them for actually applying the policy to their advantage is foolish. wean the populace off of the public trough, reduce the need for taxes and thus eliminate the taxes as much as humanly possible and watch the economy flourish. Until then, good luck.
06:29 February 19, 2013 by zeddriver
@Rule723

While I agree.

You are over looking one fact. The people have voted for the you must do every thing for me nanny government. We are our own worst enemies. The do every thing government does work. But only as long as it has other peoples money to spend.
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