Obama warns G20 of risk of tax ‘race to the bottom’

The G20 summit in China has stressed the need for international tax cooperation to achieve ‘a globally fair and modern international tax system’, after US President Obama warned of the risks if countries ‘race to the bottom’ in tax policies

At a press conference at the conclusion of the summit, his last as US President, Obama said international cooperation on tax matters was important to ‘regain the trust’ of people who feared the system is rigged.

He was speaking after the recent ruling from the EU, which requires US technology giant Apple to repay €13bn (£11bn) in back taxes after its tax arrangements with Ireland’s authorities were deemed to be illegal state aid.

‘The one thing that we have to ensure we do is to move in concert with other countries, because there is always a danger that if one ... acts unilaterally, that it's not just a matter of a US company being impacted, but it may also have an impact in terms of our ability to collect taxes from that same company.

‘In the same way, we then have to do some coordination with even some of our closest allies racing to the bottom in terms of how they enforce their tax policies in ways that lead to revenue shifting and tax avoidance in our country,’ Obama said.

Speaking at the conclusion of her first G20 summit as prime minister, Theresa May said: ‘Here at the G20, we have decided to do more to stop aggressive tax avoidance and to fight corruption.’

The final communique pledged support for ‘a timely, consistent and widespread implementation’ of the OECD’s Base Erosion and Profit Shifting (BEPS) package and called on ‘all relevant and interested countries and jurisdictions that have not yet committed to the BEPS package to do so and join the framework on an equal footing’.

G20 heads also want all financial centres and jurisdictions, which have not yet done so to commit without delay to implementing the standard of automatic exchange of information by 2018 at the latest and to sign and ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

The communique said it wants the OECD to report back to the finance ministers and central bank governors by June 2017 on the progress made by jurisdictions on tax transparency, with a view for the OECD to prepare a list by the July 2017 G20 leaders’ summit of those jurisdictions that have not yet sufficiently progressed.  It is considering ‘defensive measures’ against listed jurisdictions.

In addition the G20 wants to see more progress on standards regarding beneficial ownership, arguing that these are vital to tackling corruption, tax evasion, terrorist financing and money laundering.

It wants the Financial Action Taskforce and the OECD to make initial proposals by the finance ministers and central bank governors meeting in October on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information of legal persons and legal arrangements, and its international exchange.

Reacting to the G20 summit announcements Alison Holder, head of policy and advocacy and the charity ActionAid said: ‘We are encouraged by the prime minister's commitment to create a fairer economy.  It’s great to see an emphasis from the G20 on creating jobs and tackling tax avoidance.   However we now need concrete action.

‘Prime minister May and global governments must ensure there is a greater transparency, that poor countries are given an equal voice in the negotiations and that active steps are taken to resist a global tax-cutting race to the bottom.’

The G20 leaders’ communique is here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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