tag:theconversation.com,2011:/global/topics/base-erosion-8434/articlesBase erosion – The Conversation2017-11-08T01:39:42Ztag:theconversation.com,2011:article/870022017-11-08T01:39:42Z2017-11-08T01:39:42ZThree strategies to fight the tax avoidance revealed by the Paradise Papers<figure><img src="https://images.theconversation.com/files/193693/original/file-20171108-6758-ptnatb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The first strategy is to require the public disclosure of country by country reporting of company tax affairs.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The release of more than 13 million financial and tax documents known as the “<a href="https://www.icij.org/investigations/paradise-papers/">Paradise Papers</a>” show that the <a href="https://panamapapers.icij.org/">Panama Papers</a> last year and <a href="https://www.icij.org/investigations/luxembourg-leaks/">LuxLeaks</a> in 2014 were just the tip of the tax avoidance iceberg. It also shows that governments have not learnt their lesson and taken action.</p>
<p>Both the <a href="http://www.oecd.org/tax/beps/">OECD</a> and <a href="https://www.ag.gov.au/CrimeAndCorruption/AntiCorruption/Documents/G20High-LevelPrinciplesOnBeneficialOwnershipTransparency.pdf">G20</a> made recommendations several years ago that would have increased transparency of corporate taxes, and <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-679X.12101/abstract">extensive research</a> shows that this is effective in limiting corporate tax avoidance. Recently, we also <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporatetax45th/Public_Hearings">recommended to a Senate committee</a> that the government limit the use of some financial products that can be re-purposed for tax avoidance.</p>
<p>The Paradise Papers detail the complex offshore financial and tax activities of celebrities, politicians, world leaders, and more than 100 multinational entities. Here are three things that could help curb the problem.</p>
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Read more:
<a href="https://theconversation.com/explainer-the-difference-between-tax-avoidance-and-evasion-39777">Explainer: the difference between tax avoidance and evasion</a>
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<h2>1) Require public disclosure of tax affairs</h2>
<p>The first strategy is to require the public disclosure of country by country reporting of company tax affairs (CbCR). This idea comes out of the OECD’s <a href="https://www.oecd.org/ctp/BEPSActionPlan.pdf">action plan</a> on Base Erosion and Profit Shifting (BEPS). It would increase tax transparency by requiring corporations to make specific disclosures on the tax paid in different countries, by project and region. </p>
<p>Doing so would allow any interested party to observe and understand how corporations transfer profits from high to low tax jurisdictions. With such specific information it would more difficult for companies to hide their tax affairs and provide impetus and justification for the public to pressure tax avoiders.</p>
<p>This idea <a href="http://www.internationaltaxreview.com/Article/3059190/The-tide-turns-towards-country-by-country-reporting.html">was strongly opposed by the majority of multinational entities’ in most countries</a> on the basis of commercial sensitivity of the information, the compliance burden, and that it might distort the view of a company’s true contribution to an economy. However, such argument is spurious as large corporations already have sophisticated systems in place that are capable of producing this information. </p>
<p>Nevertheless, <a href="http://www.bakermckenzie.com/en/insight/publications/2017/04/country-by-country-reporting-in-the-uk/">some European countries</a> (notably the United Kingdom and France) do require that large multinational companies publicly disclose their tax affairs, country by country. </p>
<p>The laws in the United Kingdom fostered a <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-679X.12101/abstract">2010 campaign</a> that named and shamed companies who were not disclosing subsidiaries in tax havens. That campaign made the UK authorities tighten disclosure requirements, and after companies started disclosing their tax haven subsidiaries they became less tax aggressive. </p>
<p>Unfortunately, there is no similar mechanism in Australia for the provision of information to the public to pressure corporations that avoid taxes.</p>
<h2>2) Create a register of who benefits</h2>
<p>The next idea <a href="https://www.ag.gov.au/CrimeAndCorruption/AntiCorruption/Documents/G20High-LevelPrinciplesOnBeneficialOwnershipTransparency.pdf">comes from the G20</a>, and is to set up a public register of beneficial ownership (in other words, who owns the companies). </p>
<p>Earlier this year the Australian Treasury released a <a href="https://treasury.gov.au/consultation/increasing-transparency-of-the-beneficial-ownership-of-companies/">consultation paper</a> looking at this idea. At the time, Minister for Revenue and Financial Services Kelly O'Dwyer noted that: </p>
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<p>Improving transparency around who owns, controls, and benefits from companies will assist with preventing the misuse of companies for illicit activities including tax evasion, money laundering, bribery, corruption, and terrorism financing. </p>
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<p>However, the policy is still at the consultation stage. </p>
<p>Interestingly, a <a href="https://www.theguardian.com/australia-news/2017/may/31/beneficial-ownership-register-may-be-waste-of-time-tax-chief-tells-mps">recent comment</a> by ATO Commissioner Chris Jordan seems to both support and dismiss a public register. </p>
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<p>A register of beneficial ownership is just, you know, what someone says someone else owns so, you know, it could be good but it could be just a lot of ‘stuff’ that doesn’t really help us. </p>
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<p>The United Kingdom has <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/606611/beneficial-ownership-register-call-evidence.pdf">set up</a> a beneficial ownership register, but it is too early to know what the impact has been.</p>
<h2>3) Limit some financial products</h2>
<p>A third strategy is one we <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporatetax45th/Public_Hearings">presented to a Senate committee</a> and might have tackled some of what the multinational conglomerate Glencore was alleged to have been doing in the Paradise Papers. </p>
<p><a href="https://www.icij.org/investigations/paradise-papers/room-of-secrets-reveals-mysteries-of-glencore/">Glencore</a> is alleged to <a href="https://www.theguardian.com/news/2017/nov/05/glencore-australian-arm-moved-billions-through-bermuda">have used cross currency interest rate swaps</a> and is <a href="http://www.smh.com.au/business/the-economy/glencore-reveals-its-being-audited-by-ato-over-taxes-20150513-gh0g51.html">under investigation</a> by the Australian Tax Office. These are financial instruments that may be legitimately used by companies to manage foreign currency risk, for instance when borrowing debt denominated in foreign currencies.</p>
<p>However, these instruments may also be used by multinationals to avoid tax, by shifting profits between subsidiaries in different countries. Unfortunately, it is very difficult to determine whether these instruments are being used for legitimate purposes or for avoiding tax. <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporatetax45th/Public_Hearings">Our proposal</a> is to prohibit or limit their use, as has been done in Hong Kong. </p>
<p>Hong Kong is a special case, as it has a very low tax rate, but some form of this policy might be adopted in Australia and elsewhere. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/four-things-the-paradise-papers-tell-us-about-global-business-and-political-elites-86946">Four things the Paradise Papers tell us about global business and political elites</a>
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<p>With three large leaks, spanning a number of years, Australians have a right to ask why the problem of tax avoidance seems to be stagnating, if not getting worse.</p>
<p>Perhaps the hackers who leak these documents are getting better. But the likely answer is that it is the result of inaction by governments around the world, and Australia in particular. </p>
<p>Recommendations from the OECD, G20, and even our submission to a Senate inquiry show there are ideas out there to solve some of these issues. And countries such as the United Kingdom, Hong Kong and France have made efforts to increase public transparency of corporate tax affairs and limit the use of certain financial instruments. </p>
<p><a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-679X.12101/abstract">The research</a> from these countries show that these proposals can be successful if enacted. </p>
<p>In the end, failure to cut down on tax avoidance is not due to a lack of proposals. The failure to enact these proposals feeds into the distrust of all governments as they don’t appear to be doing a very good job at limiting tax avoidance.</p><img src="https://counter.theconversation.com/content/87002/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The ideas are already out there to tackle some of the tax avoidance highlighted by the Paradise Papers.Roman Lanis, Associate Professor, Accounting, University of Technology SydneyBrett Govendir, Lecturer, Accounting Discipline Group, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/342372014-11-16T19:21:17Z2014-11-16T19:21:17ZG20 tax reform plan should prevent another Lux leaks<figure><img src="https://images.theconversation.com/files/64642/original/qqd36xbs-1416132183.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">OECD Centre for Tax Policy and Administration Director Pascal Saint-Amans has been leading the charge against tax avoidance.</span> <span class="attribution"><span class="source">Dominika Lis/G20 Australia</span></span></figcaption></figure><p>The G20 Communique is good news on the international tax reform front. As part of the G20 commitment to boost economic resilience the Communique commits G20 nations to taking action to ensure fairness in the international tax system. This means they are looking at ways to ensure profits are taxed where economic activities deriving the profits are performed and where value is created. </p>
<p>The most positive statement is the endorsement of the global Common Reporting Standard for the automatic exchange of information between revenue authorities. The G20 also provides strong support for the recommendations coming out of the OECD project on Base Erosion and Profit Shifting (BEPS). And so it should. </p>
<p>The reform program is ambitious and not yet finished but the G20 has committed to continuing the reform program in 2015. As such, the tax scandals we have seen recently coming out of <a href="https://theconversation.com/luxembourg-leaks-how-harmful-tax-competition-leads-to-profit-shifting-33940">“Lux leaks”</a> as well as multinationals such as Apple, Google and Starbucks being named as engaging in highly aggressive tax planning strategies will hopefully become a thing of the past.</p>
<p>Despite the ongoing nature of the OECD BEPS project we have broad agreement from the world’s largest economies on what are complex and multifaceted problems. Developing nations will also be pleased to see a commitment to deeper engagement with them to address their concerns.</p>
<p>There is a great deal of work still to be done and it would be easy to argue that the OECD has not gone far enough in its proposal for reform, but now is not the time to do so. Now is the time to take a breath and reflect on achievements to date. These achievements, reflecting a half-way point in the reform program for the OECD are significant. It is also time to consider the next step for nations which have endorsed the OECD recommendations. </p>
<p>The high level support requires action at a domestic level. Top down political support is apparent but that needs to translate into action. The political will must exist if outputs are to be realised in a practical sense. Governments are going to continue to be lobbied by those with vested interests. Some groups and authors suggest multinationals are doing nothing wrong, while others suggest there are no solutions to a broken tax system. Clearly, the G20 leaders do not agree and these voices are likely to become less vocal. </p>
<h2>Government action must be coordinated</h2>
<p>Governments must act but need to do so in concert with other governments. A coordinated effort is needed and this is not lost on the OECD. Here we are already seeing cracks appear with some too slow, others too fast and some just not wanting to play. </p>
<p>Australia was slow to agree to endorse the Common Reporting Standard for the automatic exchange of information. Fortunately it has now done so. Other nations are potentially too keen. On Friday Pascal Saint-Amans, Head of the Centre for Tax Policy at the OECD, raised concerns about too much momentum. As he said, unilateral action may lead to chaos. </p>
<p>Mexico is one such example of a nation keen to enact new laws to curb BEPS. In fact, it did so earlier this year. </p>
<p>India is also a good example of a nation not liking some of the recommendations. It has made it clear it is opposed to the proposal to make arbitration binding and mandatory under the mutual agreement procedure (MAP) to resolve disputes in tax treaties. India argues such a requirement will impinge on its sovereign rights. </p>
<p>Despite the need for domestic legislation to introduce new rules, the OECD reform program is about nations agreeing to common rules. However, nations have options: agree to the common rules or act unilaterally. The latter would be less than satisfactory as tax evasion is a global problem that must be addressed with global solutions. In fact, as we have seen recently with the Lux leaks scandal, often it’s because nations act unilaterally that base erosion is occurring. </p>
<p>We are yet to see whether Jean-Claude Juncker, current European Commission President, and previous Prime Minister of Luxembourg views tax avoidance in the same way as other nations or sees it as an important issue. On Saturday he said that he is in favour of tax competition as long as it is “fair” tax competition in Europe. </p>
<p>It is easy to blame multinationals, and no doubt, they deserve some of the blame. But once the behaviour of the multinationals is addressed, it is necessary to look at what nations themselves are doing. Nations offer tax incentives to attract investment. The question becomes one of when do such incentives constitute legitimate tax competition and when do they constitute harmful tax practices. Patent boxes, or the preferential tax treatment of intellectual property is one such area of dispute amongst countries. </p>
<p>As I said, the G20 is supporting an ambitious tax reform program by the OECD so this is a “good news” story for the international community. Now we need to keep up the momentum.</p><img src="https://counter.theconversation.com/content/34237/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kerrie Sadiq receives funding from the International Centre for Tax and Development. She is a Senior Adviser to the Tax Justice Network (UK).</span></em></p>The G20 Communique is good news on the international tax reform front. As part of the G20 commitment to boost economic resilience the Communique commits G20 nations to taking action to ensure fairness…Kerrie Sadiq, Professor of Taxation, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/338902014-11-11T19:30:57Z2014-11-11T19:30:57ZKey events in the G20 push on tax avoidance<figure><img src="https://images.theconversation.com/files/63919/original/89qy3hf3-1415324913.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Pressure is building ahead of the Brisbane G20 Leaders' Summit for action on tax avoidance by multinationals.</span> <span class="attribution"><span class="source">Andrew Sutherland/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Tax avoidance by multinational enterprises is not new. But the current level of political will and public outcry on the issue is uncommon in the history of taxation. </p>
<p>The upcoming G20 meeting in Brisbane promises to keep the momentum and reiterate the determination of political leaders to address base erosion and profit shifting by corporate groups.</p>
<p>The timeline below reviews the development and key events of the anti-corporate tax avoidance movement so far.</p>
<p><em>To navigate the timeline below, hover your mouse on the right (and on the left to move back). If you can’t see the timeline, click refresh on your browser.</em></p>
<iframe src="https://s3.amazonaws.com/cdn.knightlab.com/libs/timeline/latest/embed/index.html?source=1y-etB1UmOUXFec2Bdr_VAfj0jRpkoUROxVzhD-A9AWc&font=Bevan-PotanoSans&maptype=toner&lang=en&height=650" width="100%" height="650" frameborder="0"></iframe>
<p><strong>Further reading</strong></p>
<p><a href="https://theconversation.com/irelands-move-to-close-the-double-irish-tax-loophole-unlikely-to-bother-apple-google-33011">Ireland’s move to close the ‘double Irish’ tax loophole unlikely to bother Apple, Google</a></p>
<p><a href="https://theconversation.com/g20-host-australia-faces-hard-truths-of-multinational-profit-shifting-31514">G20 host Australia faces hard truths of multinational profit shifting</a></p>
<p><a href="https://theconversation.com/information-is-power-oecd-tax-plan-puts-apple-and-google-on-notice-31472">Information is power: OECD tax plan puts Apple and Google on notice</a></p>
<p><a href="https://theconversation.com/whats-needed-for-australia-to-seriously-tackle-tax-avoidance-32272">What’s needed for Australia to seriously tackle tax avoidance</a></p>
<p><a href="https://theconversation.com/multinationals-unfazed-by-g20-tax-crackdown-23421">Multinationals unfazed by G20 tax crackdown</a></p>
<p><a href="https://theconversation.com/apple-itax-made-in-ireland-designed-in-the-us-24061">Apple iTax: made in Ireland, designed in the US</a></p><img src="https://counter.theconversation.com/content/33890/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Antony Ting does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Tax avoidance by multinational enterprises is not new. But the current level of political will and public outcry on the issue is uncommon in the history of taxation. The upcoming G20 meeting in Brisbane…Antony Ting, Associate Professor, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/214662014-01-05T19:10:19Z2014-01-05T19:10:19ZThe G20 and the taxing issue of making big business pay<figure><img src="https://images.theconversation.com/files/38331/original/6b4q7krj-1387494336.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Profit shifting by multinationals will be a key focus of the G20 under Australia's presidency this year.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Australia has officially commenced its presidency of the <a href="http://www.g20.org/">G20</a> and preparations are underway for the <a href="http://www.dpmc.gov.au/g20/">November 2014 Summit</a>, when the leaders of the world’s biggest economies will meet in Brisbane. </p>
<p>The G20 has a range of topics on its agenda (see <a href="http://theconversation.com/what-does-the-g20-actually-do-17464">here</a>). In 2014, as in the last couple of years, international taxation of multinational corporations is a big part of it.</p>
<h2>Base erosion and tax arbitrage</h2>
<p>A key focus will be further work on the OECD Base Erosion and Profit Shifting (<a href="http://www.oecd.org/ctp/beps.htm">BEPS</a>) project which the G20 “fully endorsed” at the September 2013 <a href="http://www.oecd.org/g20/meetings/saint-petersburg/">St Petersburg Summit</a>. As I’ve <a href="http://theconversation.com/the-tussle-over-australias-company-tax-16354">explained</a>, the OECD BEPS <a href="http://dx.doi.org/10.1787/9789264202719-en">Action Plan</a> states that company tax bases of governments are at risk because tax rules “may not have kept pace with changes in global business practices” and “the tax practices of some multinational companies”. The OECD, and <a href="http://www.ato.gov.au/Business/.../Large-business-bulletin--June-2013">Australia</a>, are throwing considerable resources at the BEPS project. </p>
<p>Many BEPS reforms will be unilateral country tax law “fixes” that aim to prevent international tax arbitrage, resulting from the mismatch in country tax treatment of corporate financial and business arrangements (for a discussion, see <a href="http://sydney.edu.au/law/parsons/ATTA/docs_pdfs/conference_papers/Cross_Border_Tax_Arbitrage_and_convergence_of_tax_systems_a_law_and_economics_approach.pdf">here</a>). </p>
<p>Successful international tax arbitrage does not breach any one country’s tax rules. It reduces a multinational enterprise’s global tax burden by exploiting the mismatch in tax treatment - for example, for hybrid finance instruments as illustrated <a href="http://theconversation.com/chasing-tax-across-countries-a-test-case-14756">here</a>. The aim is to deliver co-operative international tax approaches to prevent arbitrage and align key company tax rules. Unilateral tax change is hard enough in this complex area. More challenging is the BEPS goal to establish multilateral rules or treaty provisions that all G20 countries could sign up to, so as to ensure consistent taxation of hybrid instruments.</p>
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<img alt="" src="https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38326/original/xv22qn9v-1387492786.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Australia has officially commenced its presidency of the G20.</span>
<span class="attribution"><span class="source">AAP</span></span>
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<h2>Thin capitalisation</h2>
<p>Another big issue is “thin capitalisation” or “debt loading” by multinationals. For example, debt loading occurs when a multinational corporation that is foreign-owned with Australian operations or Australian-owned with foreign operations, leverages high levels of debt in Australia, and this debt carries interest that is tax-deductible in Australia. The interest deduction reduces the net profit subject to Australian tax, contributing to “erosion” of the company tax base. </p>
<p>The previous Labor government had announced law reform to limit the scope for debt loading. Most countries cap tax-deductible interest by limiting the debt to equity ratio of multinationals (although specific rules vary widely). Australia allows a generous debt: equity ratio of 3:1, that is, 75% debt to 25% assets, compared to many other countries. Former treasurer Wayne Swan <a href="http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/065.htm&pageID=003&min=wms&Year=&DocType=0">proposed</a> to limit this ratio to 1.5:1, that is, 60% debt to 40% assets. Swan also planned to eliminate a deduction for Australian debt that finances foreign investment. These BEPS measures were expected to raise A$1.5 billion over the next four years.</p>
<p>New Coalition treasurer Joe Hockey will <a href="http://jbh.ministers.treasury.gov.au/media-release/017-2013/">continue</a> with the policy of reducing debt loading, setting a debt:equity ratio of 1.5:1, but has abandoned the other reform proposed by Swan. He says this is too difficult to administer - it’s too hard to trace Australian debt that finances foreign investment - so instead he will introduce a targeted anti-avoidance rule to address abuse of debt deductions. According to the estimates, this will still raise about A$900 million to help the budget bottom line.</p>
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<span class="caption">G20 countries are sharing more information to strengthen the tax system.</span>
<span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span>
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<h2>Information exchange</h2>
<p>The G20 appears to be well on the way to strengthening international tax cooperation in tax administration and information exchange as well as joint country tax audits and enforcing tax debts. The “new standard” of automatic exchange of tax information and enhanced cross-country assistance in tax enforcement and collection have been widely accepted. The G20 <a href="http://www.oecd.org/g20/meetings/saint-petersburg/">expects</a> to begin to exchange tax information automatically by the end of 2015. </p>
<p>Many G20 countries including Australia are <a href="http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2012/Intergovernmental-agreement-to-implement-FATCA">signing agreements</a> for their banks to provide financial information to the US under its strict Foreign Account Tax Compliance Act (FATCA) regime. Meanwhile, in Jakarta, the November 2013 meeting of the <a href="http://www.oecd.org/tax/exchange-of-tax-information/a-boost-to-transparency-and-international-tax-cooperation.htm">Global Forum</a> saw tax havens Liechtenstein and San Marino become the 62nd and 63rd signatories to the <a href="http://www.oecd.org/ctp/exchange-of-tax-information/MAC_Background_Brief_for_Jounalists_November_2013.pdf">Multilateral Convention</a> on Mutual Administrative Assistance in Tax Matters. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=692&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=692&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=692&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=869&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=869&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38329/original/pwf2vw3x-1387493455.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=869&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Russia rates poorly for corruption, a problem for G20 countries.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>While the legal architecture for international tax cooperation is developing rapidly, not all taxpayers will be comfortable knowing that their tax information may be provided automatically to countries, including previous G20 president Russia, where individual freedoms are often under attack. Russia ranks 133 out of 174 countries in Transparency International’s latest <a href="http://www.transparency.org/cpi2012/results">Corruption Index</a>. It’s crucial for legitimacy of the system that G20 countries demonstrate that the rule of law will be respected in tax matters.</p>
<h2>Some tensions</h2>
<p>The G20 also <a href="http://theconversation.com/for-g20-leaders-poverty-is-a-taxing-issue-17963">says</a> that fixing global tax regulation is key to fighting poverty. A 2012 UN General Assembly <a href="http://www.un.org/en/ga/search/view_doc.asp?symbol=%20A/RES/66/191">Resolution 66/191</a> calls on the international community to develop effective international company tax rules and to increase participation of developing countries in tax policy processes. But as I explain <a href="http://elgarblog.wordpress.com/2013/07/03/tax-law-and-development-by-miranda-stewart/">here</a> it is only recently that OECD member countries have begun to acknowledge that their own tax rules and harmful tax competition are making it more difficult for developing countries to raise adequate taxes.</p>
<p>There may be some tensions in the G20 about how to reform our fundamental international tax principles for the future. The OECD BEPS project mostly aims to protect the residence basis of taxation for multinationals. This will help prevent corporate tax base erosion for rich, capital and intellectual property-exporting countries. Current OECD profit shifting rules, which emphasise the <a href="http://www.oecdguidelines.nl/guidelines/taxation/">arm’s length transfer pricing principle</a>, can be strengthened. But these current rules for allocation of the right to tax business profits between countries are under attack from capital importing countries who seek to protect and enhance source taxation of business activity. </p>
<p>India, South Africa, Brazil and China may benefit more from a “formulary apportionment” approach, which has also been <a href="www.oxfam.org/sites/www.oxfam.org/files/fix-the-cracks-in-tax.pdf">called for</a> by activist organisations such as Oxfam and Christian Aid. We might begin to see cracks in the G20 on these fundamental international tax principles in 2014.</p><img src="https://counter.theconversation.com/content/21466/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Miranda Stewart receives funding from the Australian Research Council.</span></em></p>Australia has officially commenced its presidency of the G20 and preparations are underway for the November 2014 Summit, when the leaders of the world’s biggest economies will meet in Brisbane. The G20…Miranda Stewart, Professor and Director of Tax Studies, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.