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.”