G8 Summit Calls for Co-operation on Corporate Tax Loopholes

The G8 summit in Northern Ireland has concluded with a declaration from world leaders that governments must work together to close loopholes that allow multinational corporations (MNCs) to avoid paying taxes in their home countries. 

In a joint statement issued at the conclusion of the two-day event at Lough Erne, leaders of eight of the world’s wealthiest countries declared that tax authorities should automatically share information to combat “the scourge of tax evasion” and make it harder for companies to shift their profits across borders to avoid tax. 

However, it was noted that the Lough Erne declaration contained no concrete reforms and mentioned the word “should” 13 times. 

UK prime minister, David Cameron, announced the commissioning of “a new international mechanism that will identify where multinational companies are earning their profits and paying their taxes so we can track and expose those who aren’t paying their fair share.” 

“After much hype, the G8’s proposals around tax have been an anticlimax,” commented Taxand, the tax advisory group. “While agreement on international transparency protocols and measures to combat tax evasion and aggressive tax avoidance were anticipated the G8 outcomes appear to be broad declarations and a lack of tangible actions.” 

Frédéric Donnedieu de Vabres, chairman of Taxand, commented that current tax laws have attracted criticism as politicians focus on their negative effects, but there has been a lack of credible alternatives. In a truly global economy where countries are evolving at a different pace, the options were limited – the basic options being as follows.

  • A unitary taxation system: A proposal that has not been very popular to date.
  • A Common Consolidated Corporate Tax Base (CCCTB) in the EU: This had the main drawback of introducing a level of uncertainty into tax receipts.
  • Enhanced Controlled Foreign Company (CFC) rules:  These could lead to headquarters moving.
  • Turnover based taxes: These already exist in the form of value added tax (VAT) in most countries.

“There are many choices, but not many will feasibly work,” added  Donnedieu de Vabres. “What is clear is that any reform needs to be carefully thought out and subjected to a rigorous tax benefit analysis before implementation.  

“The global economy can ill afford yet another set of changes which will divert multinationals’ resources from investing in the parts of the business that employ people and produce goods and services.”   

 

 

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