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The Group of Twenty (G20) finance ministers and central bank governors' meetings in Moscow. Photo: Xinhua

G20 backs OECD global plan to curb tax avoidance

OECD proposal would reduce multinationals' ability to avoid tax and could result in biggest change in global tax system since the 1920s

AFP

The Group of 20 has fully endorsed an action plan to clamp down on tax avoidance which its creators say could lead to the biggest change in the global tax system since the 1920s.

The Organisation for Economic Co-operation and Development (OECD) presented G20 finance ministers and central bank chiefs with the plan at their meeting in Moscow, aiming to stop big multinationals using theoretically legal schemes to pay as little tax as possible.

The OECD action plan has the support of the increasingly influential economies of China, Brazil and India as well as the likes of Luxembourg, the Netherlands and Ireland - all of whom have been accused of beggar-thy-neighbour tax policies.

The issue has gathered importance at a time of economic difficulty, with governments keen to use every means to rake in as much cash into depleted budgets as they can.

The OECD plan aims to create a broad super-national system of regulation that will remove the incentive for companies to use practices like registering in a third country to pay a minimum of tax and other schemes.

"We fully endorse the ambitious and comprehensive action plan submitted at the request of the G20 by the OECD," the G20 said in its statement on Saturday.

"Ensuring that all taxpayers pay their fair share of taxes is a high priority in the context of fiscal sustainability, promoting growth, and the needs of developing countries to build capacity for financing development.

"Tax avoidance, harmful practices and aggressive tax planning have to be tackled," the communiqué added.

At a summit last month in Northern Ireland, leaders of the Group of Eight published sweeping goals for tightening the tax rules on globetrotting corporations that have long exploited loopholes to shift profits into foreign shelters that charge little tax or none. But that initiative, aimed at forcing the Googles and Apples of the world to pay higher taxes, contained only aspirations, not binding commitments.

The statement stopped short of giving a deadline for implementation of the action plan. The OECD had previously said it could be implemented by 2014.

But the G20 statement added: "We look forward to regular reporting on the development of proposals."

The main champions of the plan - Germany, Britain, France and Russia - want it adopted by the entire G20 and implemented within two years.

French Finance Minister Pierre Moscovici said that under the present system some big companies were getting away with paying just 3 to 4 per cent tax, something that could not be justified to ordinary citizens.

The British finance minister, Chancellor of the Exchequer George Osborne, said the OECD plan represented "a major step forward".

"The message is clear - people and companies are to pay the taxes that are due," Osborne said.

There were doubts about Moscow's commitment to the issue, given that many Russian firms are registered abroad to escape tax, a practice highlighted sharply by the Cyprus crisis.

But Osborne said Moscow was fully involved in the plan.

The OECD said in its plan that a proper rule system was needed as the present framework was "consensus-based" and risked being entirely undermined, especially as the digital economy becomes ever more important.

Actions proposed by the OECD include requiring taxpayers to disclose their aggressive tax planning arrangements to the fiscal authorities but also making dispute resolution mechanisms more effective.

"[The plan] sets forth 15 actions that would result in the most fundamental changes in the tax systems since the 1920s," said OECD secretary general Angel Gurria as he presented the plan on Friday.

"We must address this so that multinationals pay their fair share."

This article appeared in the South China Morning Post print edition as: G20 backs plan to curb tax evasion
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