July 20 (Bloomberg) -- Group of 20 nations “fully endorse the ambitious and comprehensive” plan presented by the Organization for Economic Cooperation and Development, according to a statement published in Moscow today.
“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,” the G-20 said after a two-day meeting of finance chiefs.
Backing by the G-20, which says it accounts for almost 90 percent of the global economy, boosts the Paris-based OECD’s efforts to prevent the largest companies from using complicated ownership structures and transfer pricing to avoid paying taxes where they do most of their business. Tax avoidance and “aggressive tax planning” have to be tackled, the G-20 said in the statement.
Strategies used at U.S. companies including Google Inc., Apple Inc. and Yahoo! Inc. have been targeted in legislative hearings as governments look to improved tax collection to fill state coffers. Low tax rates paid by large multinational companies means smaller businesses and individuals are left with a disproportionately larger burden, OECD Secretary-General Angel Gurria told reporters yesterday.
“It’s a matter of justice and fairness that multinational companies pay their fair contribution” to national budgets, German Finance Minister Wolfgang Schaeuble told reporters yesterday in Moscow. Without “fair burden sharing, in the end we will destroy even a global, open economy.”
The OECD published its 40-page report as deficit-laden governments attempt to increase revenue collected from profitable enterprises. It follows hearings in the U.S. and U.K. that revealed how companies have avoided billions in taxes by attributing profits to mailbox subsidiaries in places like Bermuda and the Cayman Islands.
The OECD plan, which was also developed by the German, U.K. and French finance ministries and backed by G-20 president Russia, calls for rules to make it harder to shift profits by assigning intellectual property, such as patent rights, to offshore units.
The plan is a “major step toward addressing tax avoidance by multinational firms in the global economy and represents a concerted effort to raise standards around the world,” U.S. Treasury Secretary Jacob J. Lew said in a statement. “We must address the persistent issue of ‘stateless income,’ which undermines confidence in our tax system at all levels.”
Under current law, such offshore subsidiaries can take credit for profits arising from patents developed in countries like the U.S. and U.K. -- generally with cash the parent companies provided.
Mountain View, California-based Google has avoided as much as $2 billion in worldwide income taxes annually by attributing profits to a subsidiary in Bermuda that holds the rights to its intellectual property for sales outside the U.S., Bloomberg News reported in December.
G-20 finance chiefs will recommend that the group’s leaders summit approve the plan in September, according to Russian Finance Minister Anton Siluanov.
“It’s a solid plan, which generally everyone approved,” he told reporters at the closing G-20 press conference. “It’s important because it will allow for improved transparency in the activity of large, multinational companies, which as Mr. Gurria noted today, have double non-taxation.”