Intl bodies to fight global tax evasion / Maximum of $240 bil. said to be dodged
The Yomiuri Shimbun
Four international organizations will join forces to devise unified global tax rules aimed at preventing tax evasion by multinational companies.
The four entities involved are the Organization for Economic Cooperation and Development, the United Nations, the International Monetary Fund and the World Bank. The OECD — whose membership comprises mostly developed nations — took the initiative last year to devise certain rules with China, India and some other developing economies. The four organizations will coordinate their efforts to build on these rules.
They intend to involve more countries to increase the rules’ effectiveness in preventing tax evasion.
The Group of 20 major economies, including Japan, the United States and China, plan to start discussions on the matter at their February meeting of finance ministers and central bank governors in China. The four international organizations will then announce their policies as early as this summer.
To accelerate discussions, the Japanese government will also table the matter at the Group of Seven Ise-Shima summit scheduled for May.
Currently, international arrangements for taxation are generally made based on bilateral tax treaties. Under the new framework, the four international organizations will create a system where developed and emerging economies can work together to effectively monitor multinational firms to prevent tax evasion. They believe that increasing the number of countries involved will constrain countries willing to introduce taxation systems that could lead to tax dodging.
In recent years, many multinational firms have tried to reduce their tax payments by relocating their headquarters to countries with lower tax rates or establishing subsidiary companies there. The OECD estimates that evaded tax payments amount to a maximum of $240 billion, or ¥30 trillion, a year on a global basis. Tax evasion at this level can no longer be overlooked, a Japanese government official said.
In October last year, the European Commission ordered the Dutch and Luxembourg authorities to impose penal taxes on U.S. coffee giant Starbucks Corp. and a financial business subsidiary under Fiat Chrysler Automobiles.
In November last year, major U.S. pharmaceutical firm Pfizer Inc. announced a plan to integrate business with an Irish drugmaker, which triggered a public debate over whether it was trying to lower its tax payments by relocating its headquarters to the European country, where corporate tax rates are lower than in the United States.
Corporations benefit by using roads, communication networks and other infrastructure funded by the government with taxpayers’ money, and by hiring people who were educated under the national system. The taxes on companies, including corporate taxes, are their payment in exchange for the use of such social properties in the countries where their headquarters and factories are located.
