The fourteen middle-aged men — half of them bald or balding — who spread themselves across a long stage in Lima Friday morning wouldn’t have troubled your average street gang. Chief financial officers of multinational corporations, on the the other hand, should cower.
Most of those men were finance ministers in the Group of 20 economic powers. While G20 officials meet often enough, rarely do they assemble for a press conference in such large numbers. (Never have I seen a bigger group of senior international officials gather to take questions from reporters in my 15 years of attending such events.) The G20 wanted to send a message: corporate tax dodgers, we’re coming for you.
The reason for the show of force was the Organisation for Economic Co-Operation and Development and the G20’s Base Erosion and Profit Shifting initiative, or BEPS, an ambitious effort by dozens of countries to fill the cracks that international companies use to hide profits from the tax authorities in their home countries. The OECD estimates that governments could be losing between $100 billion (US) and $240 billion every year from the “aggressive” tax strategies deployed by companies such as Starbucks and Apple. Two years ago, the G20 called on the OECD to study the issue and come up with ways that governments could work together to plug the holes. On Friday, the G20 endorsed the OECD’s work and pledged to implement its recommendations as quickly as possible.
“I think we have achieved something historic here,” said George Osborne, the UK’s chancellor of the exchequer. Osborne and other ministers said the speed at which the OECD completed the work was unprecedented and showed the value of organizations such as the G20. “We can deliver if we are decided to do so,” said German Finance Minister Wolfgang Schaeuble. Among the others on the stage were the finance ministers of the United States, China, Japan, France and Australia.
The current political conditions in most of the G20 countries make it relatively easy to push aside the complaints of international business. The sight of profitable corporations hiding in plain sight from the taxman has angered voters around the world. Governments also need the money, as the financial crisis left many with heavy debts, while sluggish growth is pinching revenue.
Angel Gurria, the head of the OECD, said his organization reviewed 20,000 pages of comments on how international corporate tax rules should be overhauled. The OECD turned all that input into 15 “actions” that countries should take to reduce the ability of companies to avoid taxes. For example, the OECD says countries should force companies and taxpayers to disclose their “aggressive” tax strategies so revenue authorities can adjust as necessary.
To be sure, it is easier to identify problems than to actually fix them. Gurria joked that governments must focus on three things: implementation, implementation, and implementation. A cheeky journalist countered with a call for a show of hands from the ministers who would resign in a year if the OECD’s tax policies languished. All sat still. In jest, China’s finance minister eventually put up his hand. It was a telling gesture, however: only autocratic China could guarantee implementation on the spot.
Still, ministers insisted they were serious about BEPS. Jacob Lew, the US treasury secretary, said much of the agenda could be put in place without legislative approval. Perhaps international momentum will be enough to bring about change. In the end, countries only are asking their companies to comply with the law. “These taxes have to be paid,” Osborne said.
