G20 agrees on new rules to combat offshore tax evasion
The world's top financial officials have ramped up co-operation to combat offshore tax evasion after the G20 meeting in Sydney signed off on a global standard for the worldwide automatic exchange of tax information.
A communique released after the meeting of G20 finance ministers and central bank governors on Sunday said ''profits should be taxed where economic activities deriving the profits are performed and where value is created''.
It endorsed an international standard for sharing tax information developed by the Paris-based Organisation for Economic Cooperation tht will allow tax information to be automatically exchanged between nations, not just when it is requested.
The communique also warned jurisdictions used as tax havens that the G20 members ''stand ready to give tougher incentives'' for jurisdictions that have not complied with existing international information exchange schemes.
Treasurer Joe Hockey said the new standard would significantly enhance transparency and reduce opportunities for tax evasion.
''Some global companies aren't paying their fair share of tax anywhere,'' he said. ''We want a global response. We expressed our continued full support for the G20 OECD action plan and I am pleased to say this work is on track for delivery at the Brisbane summit at the end of this year … The globe needs to know who is paying tax where.''
The automatic information exchange standard is expected to be in operation among G20 members by the end of next year.
OECD director of tax Pascal Saint-Amans said reforms to fight tax evasion were needed to rebuild public confidence in tax systems.
''If taxpayers don't have trust in the fairness of the tax system, the level of compliance drops,'' he said.
''What governments have been facing over the past two years is the awareness that big multinationals are not paying much.''
The globalisation of the world's financial system has made it increasingly simple for individuals and corporations to shift money across borders to evade tax.
Mr Saint-Amans said it was possible to ''neutralise'' the impact of tax evasion schemes by changing the international rules.
''We think we can succeed,'' he said.
Mr Saint-Amans said there was a very strong commitment among G20 members to move ''as quickly as possible'' to implement measures to reduce tax ''base erosion'' and ''profit shifting''. Even so, it is likely to be several years before the measures endorsed in Sydney are fully implemented.
The amount of tax revenue being lost globally because of the use of offshore tax havens in not known, but Mr Saint-Amans said ''I can tell you that it's really big''.
Last year the magazine The Economist estimated about $US20 trillion ($22.3 trillion) could be stashed in tax havens.
In September the OECD will present the G20 with a report on the challenge to tax regimes posed by the digital economy.
It will also report on how information technology can be used to efficiently facilitate the automatic exchange of tax information.
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