Fairer taxation for trust: the time is now!
Today’s post is from OECD Secretary-General Angel Gurría.
Six years since the onset of the Crisis many advanced countries continue to face high unemployment, sluggish growth and weak public finances. Growth is also slowing down in emerging markets.
Meanwhile, as recent revelations have demonstrated, the frayed international tax system has long allowed multinationals to plan their way around paying corporate taxes. And bank secrecy has let individuals stash money undetected, and untaxed, in hidden corners of the world.
Such practices erode the integrity of our tax systems, damage the capabilities of our governments, diminish economic growth and corrode the trust of our citizens who are the vast majority of taxpayers. The way tax is levied and spent is one of the most important levers to address social inequalities, create jobs, pay for education, infrastructure and other public services and encourage investment in innovation.
The OECD has helped put the international tax system at the forefront of the international policy agenda. Our work has been endorsed by the G20, whose leadership deserves praise and recognition for giving top priority to calling time on tax havens and recognising that an international tax framework developed 100 years ago is no longer fit for purpose.
Accounting for almost 90% of the global economy, 44 countries including the G20 have tasked the OECD with finding ways to fix this situation. Our Base Erosion and Profit Shifting (BEPS) Project aims to ensure the rules governing these systems are transparent, and that multinationals cannot exploit gaps between national tax laws or artificially shift profits to low tax jurisdictions where no real economic activity takes place.
We’re moving fast. The first results of our BEPS project were released in September and we are on track to deliver the final package of measures a year from now. These efforts will neutralise the “cash boxes” companies use to keep trillions of dollars of profits offshore and free of taxation. They will also ensure that patent boxes can’t be used to shift profits to countries where no substantial activities are carried out to generate those profits. Countries have also been spurred into action: Ireland will put an end to “double-Irish” tax planning schemes and the Netherlands will renegotiate its tax treaties with developing countries to ensure they can’t be abused by multinationals to avoid paying tax. And the European Commission has launched high-profile state-aid investigations into tax practices by its members that could breach EU law.
We have also witnessed a sea change on the tax transparency front since 2009 when strict bank secrecy was still the rule in many countries. The Global Forum on Transparency and Exchange of Information for Tax Purposes now has over 120 members. The Forum has issued over 70 compliance ratings on its members and over 500 recommendations have resulted in changes to laws and practices that will improve tax transparency worldwide.
Implementing Automatic Exchange of Information (AEOI) is the next major objective. We have developed a new global standard in close cooperation with G20 countries and 93 jurisdictions have now committed to launching automatic exchange by 2017 or 2018. Only last month in Berlin, 51 countries and jurisdictions took the first step toward implementation by signing a multilateral agreement. Luxembourg, Switzerland, Singapore and many other financial centres are already on board, and more will follow. This robust standard will allow authorities to track income and offshore assets. These efforts are bearing fruit. Voluntary disclosures by tax evaders have already yielded 37 billion euros of additional revenue to OECD and G20 countries since 2009.
Extending the benefits of these changes to developing countries is a top priority. They have a big stake in this effort but lack the resources to crack down on their own. The OECD is involving them fully in shaping the new global standards. Initiatives such as our Tax Inspectors Without Borders are specifically designed to help developing countries prevent the erosion of their tax bases and the illicit outflow of revenues through tax evasion.
Now is the moment for governments to take action in a concerted international effort. Corporate profits must be based on the true cost of developing products and services, not on clever distortive tax arrangements that favour multinationals over domestic businesses. Too many multinationals are getting away with paying as little as 1% -2% on their global profits, and in some cases paying nothing at all.
Overhauling the global tax system and its practices is fundamental if we are to deliver stronger, cleaner and fairer growth for a post-Crisis world. What happens in the next 12 months, starting with the G20 Brisbane Summit, will be critical for the success or failure of this exercise. Making historic changes means taking tough decisions and takes political courage. In the current circumstances, nothing less will do.
Are you following the G20 leaders’ summit in Brisbane this weekend? The OECD Observer magazine is here to help. OECD Secretary-General Angel Gurría and Australian Treasurer Joe Hockey lead this fact-packed “300th edition” through the G20 issues on the table at Brisbane, with articles on growth (notably the 2% growth challenge), trade, gender and jobs. In our Ministerial Roundtable on employment, ministers from Australia, Germany, Korea, Spain and the US outline the actions they have been taking to create more and better jobs. Business and labour representatives add their perspectives. The edition also asks whether Europe can avoid deflation, and traces the fall in productivity growth across OECD countries since the 1960s. With Brisbane the focus of world attention, the OECD Observer casts a spotlight on Australia’s economy, and asks why the “lucky country” is also a happy one. We recount how Australia came to join the OECD (not as smooth a path as you might imagine), and outline the country’s future challenges in the Asian Century.