The OECD has stated in a report commissioned by the G20 that there will be “global tax chaos” in the next few years due to falling tax revenues from multinational companies around the world. Perhaps we could have saved a few thousand dollars by not commissioning the OECD report, since we could have all told them that was going to happen. It really does come to something when we waste the money that we don’t have on reports that we don’t need. Sometimes people get money for old rope it seems. But one other adage is also true: you can’t teach old dog new tricks; the old dog being the multinationals. They are hardly likely to suddenly start paying more tax, are they? Although, maybe someone somewhere will commission a report to see if they will and then discover that they won’t after all. Oh well!
It’s not just that the report has been commissioned when it was probably needless to say more than common knowledge around the world, but also that it has been hailed as a ‘long-awaited’ report that will be used this weekend as the G20 Finance Ministers continue to meet in Moscow along with Central Bank Deputies. They met yesterday and the meetings will continue throughout the day, ending in a Finance-Ministers’ and Central-Bank Governor s’ Meeting onSaturday July 20th.
The report by the OECD states that there needs to be increased clamping down in corporate tax practices and says that this will be “a turning –point in the history of international co-operation on tax”. In the G8 summit in June 2013, Prime Minister of the UK David Cameron had said that he wanted to crack down on tax havens and bring them into line with other countries, eradicating tax avoidance.
Although the report by the OECD is rather more an analysis of the situation than a solution-finding aid (there are very few actual, concrete proposals that are made), it does state the following:
- Companies should be made to publish tax-avoidance plans so that they can be looked into by authorities who should determine whether they are acceptable or not. Although, that seems rather strange since companies such as Amazon and Google that are writing off their tax are doing so through the exploiting of loopholes that we have allowed to exist still today in an antiquated system.
- Tax havens need to be reformed as they provide for unfair situations for some multinationals (with no suggestion as to how to reform the situation. Any ideas?).
- Economic activity must be in line with generation of income. At the moment, through subsidiaries, multinationals are able to disassociate income from economic activity by using low-tax countries. On-line companies would be forced to pay tax in countries where the sales are generated and not where they are headquartered.
- Multinationals must be requested to publish all costs (including license expenses, interest, administrative costs and salaries).
- International rules allow companies today to have a digital presence in a country but not pay tax there due to a lack of both a legal framework encompassing that and also lack of legal binding to that country’s economy. This must be changed.
The OECD report has stated that there is a need for “urgent reform”, but also that bilateral agreements between countries must be made into multilateral frameworks that will solve the tax avoidance problem in the world. It also states that "the way in which multinationals have greatly minimised their tax burden has led to a tense situation in which citizens have become more sensitive to tax fairness issues."
Reports from the meeting in Moscow have said that the Finance Ministers of the G20 and the Governors of the Central Banks believe that there will be some breakthroughs in dealing with tax evasion in the years to come, although without actually stating how, when or where. But, it also states that eradicating tax evasion will take a long time. But, thereby hangs the whole crux of the matter. The downfall of administration is that it is exceedingly long and procrastinated. It doesn’t live in the real world in which people communicate and take decisions at a million miles a second across the planet. The administration we are engulfed in is drawn-out and exceedingly slow. The hare and the snail. But, admittedly, the snail won the race in the end. We shall see if that happens this time. There are many that believe that by the time the Finance Ministers of the G20 and the Governors of the Central Banks have come to any sort of agreement it will be a few years down the road. Then we shall have to wait for those plans to be implemented and show results. That will be another couple of years. By that time, the companies that are doing the diddling and the tax dodgers will have dodged their way into another cushy number that will be a loophole that the admin guys failed to see. But, one saving grace is that the admin guys that are in Moscow today will not be the admin guys of times to come, so the new guys will be able to point the figure and say “I told you so”.
The US administration stated that it would not allow for anything to stand in the way of development of fast-growing US multinationals such as Google and Amazon, for instance. The US agreed that there was a need to bring tax regulations into the 21st century and update antiquated 1920s international tax agreements. But, moderate change was requested in the days before the G20 summit opened.
We shall see after Saturday’s meeting in Moscow if the Finance Ministers of the G20 and the Governors of the Central Banks are able or even willing to come to some sort of agreement and find common ground that will be beneficial to the average people in their countries, or if, on the other hand, they are going to be guided by competitive self-interest in maintaining the system as it is.
Originally posted: Global Tax Chaos Coming