Britain, France, Germany back multinational tax clampdown

MOSCOW - Reuters

Patrons sit in a Starbucks Coffee shop in central London. The three biggest European countries have published a joint initiative against global companies that shift countries to reduce tax payment. REUTERS photo

The British, French and German governments launched a joint initiative on Feb. 16 to crack down on tax avoidance by multinational companies that will be presented to a G20 finance leaders meeting in July. The plan, unveiled by the three countries’ finance ministers at a G20 meeting in Moscow, follows up on a report by the Organisation for Economic Cooperation and Development (OECD) that many big firms country-hop to pay less tax.

The OECD highlighted a growing trend for multinationals to shift profits to countries where tax rates are lowest, and urged a sweeping overhaul of international tax rules to prevent this.

“This work is the basis of increased international cooperation to make sure our tax rules reflect our international economy,” British finance minister George Osborne said.

“Unbelievably our tax rules were created a hundred years ago by the League of Nations, and much has happened to our international economy since then.”

German Finance Minister Wolfgang Schaeuble said the trio would examine ways to close loopholes that made it too easy for companies to decide where they paid taxes, particularly on “mobile income” such as interest, dividends and royalties.

“Multinationals should not be able to capture globalisation to unfairly reduce their taxes,” he said.

In a briefing paper, the UK Treasury said that Britain will chair an OECD group on transfer pricing, Germany will chair one on tax-base erosion and France - with the United States - will examine jurisdiction issues, especially on electronic commerce.

Britain chairs the Group of Eight forum this year and has said tax compliance will be a major focus when the leaders of the major economies meet in Northern Ireland in June.

Public outrage

The tax reform plan comes at a time when governments are facing public outrage over how some multinational companies handle their international tax affairs.

In Britain, the issue of multinational tax avoidance has risen to the top of the political agenda, after revelations that companies such as Starbucks, Apple, Google and Amazon were using complex inter-company transactions to cut their tax bills.

“The economic context is now a globalised world, where there are more investment and capital flows and new kinds of businesses are developing, especially in the digital economy,” French Finance Minister Pierre Moscovicisaid.“We must ensure that this new form of business also pays its fair share.”