CAIRNS, AUSTRALIA: India’s attempt to unearth black money received a big boost, with the G20 on Sunday endorsing a far-reaching global initiative to stamp out tax evasion through automatic information exchange by 2017-2018 and resolving to coordinate to protect the tax base through cross-border arrangements.
“We are strongly committed to a global response to cross-border tax avoidance and evasion so that the tax system supports growthenhancing fiscal strategies and economic resilience,” read the communique at the conclusion of atwo-day meeting of finance ministers and central bank governors belonging to the G20, a grouping of key nations that makes up 85% of the world’s economy.
The G20 also sought a report on progress made by jurisdictions in relation to the exchange of information on request, which will be presented to the leaders of member countries at the Brisbane summit in November, a measure that will put pressure on offshore financial centres that facilitate tax evasion. It has also asked offshore financial centres to commit to the new norm well in time for the meeting. Finance ministers also resolved to take forward the OECD’s latest Base Erosion and Profit Shifting (BEPS) action plan by 2015, a move that will make it difficult for multinationals to shift profits from one jurisdiction to another to save taxes.
Multinationals with a presence in many countries that prefer to show larger profits in low-tax jurisdictions or operate through subsidiaries in such territories will now face pressure to clean up their structures.
The communique takes into account concerns that many countries such as India have expressed on defining the base in the case of a multinational— home countries, intermediary country where the holding company is located or the country where it derives its profits.
For example, in the case of an American MNC that derives its income largely from emerging economies, the US authorities will get the right to tax as it will be seen as based there. “The fact is the profits are in emerging markets. The base needs to be defined properly,” India’s finance secretary Arvind Mayaram said.
India has taken up the issue at the forum to ensure that its tax base is not eroded. The majority of MNCs that operate in India invest indirectly through favourable tax jurisdictions such as Mauritius or Singapore to lower their tax outgo.
The G20 also decided to implement strategies that would lift global growth by 1.8%, scaling it down from 2% proposed by Australia, the current chair. “We agreed to shift from government-led growth towards private sector-led growth, particularly from infrastructure investment,” it said.
The G20 also resolved to create a Global Infrastructure Initiative to help boost investment through the sharing of best practices. “We need to be ambitious, we need to give people hope that tomorrow and the years beyond are going to be better than today. The agreement on measures to lift growth was 90% complete but by the time the G20 leaders meet in Brisbane in November there would be concrete outcomes. If the 1.8% growth rate is achieved, it would add $2 trillion to the world’s economy within four years,” Australian FM Joe Hockey said.