G20 makes progress on tax reform

Business profits should be taxed in the countries where they are earned, the G20 leaders ruled at last month’s St Petersburg summit.

Their declaration emphasised that national laws should not allow corporates to reduce their liability by artificially shifting profits to low-tax jurisdictions.

The decision was part of a policy agreed by all the G20 leaders to amend legislation to stop tax avoidance, aggressive tax planning and harmful practices, and to start the automatic exchange of tax information between countries by the end of 2015.

One aim was to ensure that developing countries receive taxes on all company profits made within their boundaries.

ActionAid, the international anti-poverty NGO, welcomed the policy as having “the potential to put an end to tax-dodging that costs developing countries more than they receive in aid”.

Alex Prats, Christian Aid’s principal economic justice adviser, regretted that developing countries had not been brought into the G20 discussions and the decision had done nothing to strengthen the UN Tax Committee, which “supports poor countries’ contribution to the negotiations but is too under-resourced to do so effectively”.

Prats said: “If the voices of developing countries are not heard, then the risk is that reforms to the international tax system will only benefit rich and emerging economies.”

Christian Aid believed transparency was another essential corporate reform, enabling all stakeholders to see whether multinationals were paying due taxes and revealing the actual owners of companies, many of which were in the grip of tax dodgers, money launderers and terrorists.

In the UK the government is being pressured to change the rules under which Vodafone avoided tax on £84bn ($134bn, €100bn) from the sale of its stake in the US mobile phone group Verizon.

An exemption was granted in 2002 allowing businesses to escape tax on profits from selling a 10% stake or more in another company held for more than a year.

Margaret Hodge, chairman of parliament’s public accounts committee, said: “We need assurances that [the tax authorities] have crawled over this deal and done their damnedest to make sure taxpayers receive the highest amount of this sudden windfall. If there is a flaw in the legislation, treasury ministers should look at it urgently.”

Lord Oakeshott, the Liberal Democrats’ former treasury spokesman, said: “Vodafone is right up there with Google and Amazon in the world tax dodgers’ league.”