G-20 finance ministers back plan to curb tax evasion by large corporations

Companies such as Apple, Starbucks have avoided paying

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MOSCOW -- The world's richest economies for the first time endorsed a blueprint Friday to curb widely used tax avoidance strategies that allow some multinational corporations to pay only a pittance in income taxes.

It could be years before any changes take place in national tax laws, and big corporations and other interest groups are sure to lobby heavily to preserve their tax breaks. But the proposal was the most concrete response yet to the intensifying pressure on governments around the world to address the issue.

The governments have strong motivation for change. They are starved for revenue and face citizenry who see inequity in a system that enables some highly profitable corporations to pay far lower tax rates than workers.

In one widely cited example, Starbucks last year paid no corporate tax in Britain despite generating sales of nearly 400 million pounds (about $630 million) from more than 700 stores in that country. Apple, despite being the most profitable U.S. technology company, avoided billions in taxes in the United States and around the world through a web of complex subsidiaries.

In light of such practices -- which are entirely legal, taking advantage of differing tax rules around the world -- the Organization for Economic Cooperation and Development, or OECD, has proposed that all nations adopt 15 new tax principles for corporations. The plan focuses on corporations only and would, if adopted widely, shift some of the global tax burden toward large companies -- the ones big and rich enough to devise complex tax-reduction strategies -- and away from small businesses and individuals, which tend to spend a much bigger share of their incomes on taxes.

The list, presented at a Moscow meeting Friday of finance ministers from the Group of 20 nations with the largest economies, includes ideas to prevent corporations from "treaty shopping" to find nations with the lowest taxes and then find ways to book their profits there, even when much of the money is made elsewhere.

The group recommended strict rules for defining where a company has a permanent presence. It also proposed three measures to limit the practice of so-called transfer pricing -- the shunting of profits and losses between subsidiaries by disguising them as internal corporate payments for goods or, as is increasingly common, for copyright or patent royalties.

Friday's proposal represents a new global commitment to tackle an issue that has drawn an angry outcry in some nations; lawmakers in the British Parliament and the U.S. Congress this year have held hearings on corporate tax avoidance. It is unclear if this proposal will gain any more traction than past statements of resolve by the G-20 nations.

The Obama administration has endorsed the plan, and Treasury Secretary Jacob J. Lew in a statement said it would help "address the persistent issue of 'stateless income,' which undermines confidence in our tax system."

The OECD does not expect to complete work on the proposals until the fall of 2015, and after that, it would be up to governments and legislatures to pass new tax laws adopting them.

Some of the proposals would seek to standardize the way profits are counted, and to assure that companies could not -- as Apple did -- create subsidiaries that had profits but, for tax purposes, were located nowhere. There would also be efforts to assure an international exchange of information, to make it possible for countries to assess the taxes each multinational was paying around the world.

Sen. Carl Levin, D-Mich., chairman of a subcommittee that has investigated tax arrangements at several major companies, including Apple, said there was "growing global demand for reining in corporate offshore tax abuses," and that he hoped that the United States would act on the proposals. "It's long overdue for Congress to close outrageous corporate tax loopholes, increase tax fairness and use the revenue to stop irrational sequestration cuts from further damaging national security, education, health care, research and innovation and more," he said Friday.

If the plan is accepted, the G-20 countries would commit to it at a September gathering of heads of state in St. Petersburg, Russia.

Multinational companies have found that they can pay less by opening subsidiaries in the Netherlands, Luxembourg and Ireland, or in North America in offshore havens such as Bermuda or the Cayman Islands.

In the United States, taxes on corporate profit contributed 40 percent of all income tax to the U.S. Treasury 50 years ago. Today, corporations contribute less than 20 percent, with the slack taken up by small companies and those paying individual income tax.

The OECD, a government-supported research organization representing 34 nations, says taxes on individuals and small businesses have increased in nearly all its members.



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