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    Monday, April 15, 2024

    G-20 backs plan to curb corporate tax evasion

    International Monetary Fund Managing Director Christine Lagarde attends a meeting Friday of the Group of 20 finance ministers in Moscow. Low tax payments by major global companies - including Google, Amazon, Facebook and Starbucks - have sparked recent public anger in Europe.

    Moscow - Government officials from the world's largest and richest economies on Friday for the first time endorsed a blueprint to curb widely used tax avoidance strategies that allow some multinational corporations to pay only a pittance in income taxes.

    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, but take advantage of differing tax rules around the world - the Organization for Economic Cooperation and Development has proposed that all nations adopt 15 new tax principles for corporations. The plan focuses only on corporations 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 Friday at a meeting of finance ministers of the Group of 20 countries in Moscow, includes ideas to prevent corporations from "treaty shopping" to find countries with the lowest taxes and then find ways to book their profits there, even when much 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.

    It may be too soon to know whether Friday's proposal represents a new global commitment to tackle an issue that has drawn an angry outcry in some countries - lawmakers in the British Parliament and the U.S. Congress this year have held hearings on corporate tax avoidance - or whether this proposal will gain no more traction than past statements of resolve by the Group of 20 nations with the biggest economies. Although the United States did not have a representative at Friday's presentation, the Obama administration has endorsed the international reform and signed an initial commitment earlier this year.

    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.

    The plan is called BEPS, for "base erosion and profit shifting," a description of tactics that companies use to reduce their taxes. If successful, it would mean that countries could collect more in taxes at the same time they lowered tax rates, simply because the base they were taxing was larger.

    The details, however, may prove daunting and will be subject to intense lobbying by corporations. In addition, countries have long used tax policies in efforts to lure businesses to locate operations there.

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