Bloomberg News

G-20 ‘Determined’ to Fight Profit-Shifting, Secure Revenue Base

February 16, 2013

Finance chiefs from the Group of 20 pledged to work together to curb multinational companies’ leeway to shift profits to low-tax countries, endorsing an initiative spearheaded by Europe’s biggest economies.

Britain, Germany and France today called on other G-20 nations to restrict tax avoidance by international corporations that declare profits in territories where they can pay the lowest amounts.

“We are determined to develop measures to address base erosion and profit shifting, take necessary collective actions and look forward to the comprehensive action plan” the Organization for Economic Cooperation and Development will present in July, the G-20 said in a statement published after a two-day meeting in Moscow.

Western nations, seeking to shrink budget deficits, are looking for ways to raise more money from companies to placate voters squeezed by falling living standards and cuts to public spending. The Paris-based OECD is working on plans which, if approved by the U.K., Germany and France, will be put for adoption to the G-20 in July.

“We do want businesses to pay the taxes that we set them in our countries,” Chancellor of the Exchequer George Osborne said in Moscow. His German counterpart, Wolfgang Schaeuble, said that “multinationals, like local businesses,” must “pay their fair share of tax.”

Following the OECD’s analysis, Britain will lead an international committee looking to rewrite transfer-pricing rules that allow companies to shift profits to lower-tax jurisdictions. Germany will take the lead on work looking at erosion of the tax base, while France and the U.S. will examine ways to determine tax jurisdiction, particularly for companies involved in e-commerce.

Amazon, Starbucks

Amazon.com Inc. was among three U.S. companies singled out by U.K. lawmakers last year for not paying enough tax in Britain. Members of Parliament’s Public Accounts Committee criticized the online retailer, Starbucks Inc. and Google Inc. for using complex accounting methods to reduce their tax liabilities in the U.K.

Testimony by the retailers at a Nov. 13 hearing at times drew laughter from lawmakers who queried how Amazon made 20 million euros ($27 million) profit on sales of 9.1 billion euros across Europe and questioned why Starbucks remained in Britain as it had recorded losses for most of the 15 years it had operated in the country. Google paid 6 million pounds ($9.3 million) in company tax in Britain last year.

‘All Jurisdictions’

The G-20 said it’s committed to “extending the practice of automatic exchange of information, as appropriate,” and encouraged “all jurisdictions” to sign a convention on mutual administrative assistance.

The U.K. government said this week it would bar companies with a history of breaking tax rules from winning government contracts.

Under proposals published two days ago, companies bidding for contracts starting on April 1 will have to make a declaration about their tax compliance, and departments will for the first time have the power to refuse contracts on the grounds a company has broken anti-avoidance rules.

To contact the reporters on this story: Rainer Buergin in Moscow at rbuergin1@bloomberg.net; Gonzalo Vina in Moscow at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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