Finance ministers of the Group of 20 major advanced and emerging economies meeting in Cairns, Australia have agreed to tackle base erosion and profit shifting (BEPS) to make sure companies pay their fair share of tax. They have also agreed to close regulatory loopholes, increase transparency and crack down on tax evasion.
The G20 leaders are expected to adopt recommendations by the Organisation for Economic Cooperation and Development (OECD) that would augur major changes in international tax rules and help tackle corporate tax strategies that are costing countries billions of dollars.
The G20 recommendations handed over by OECD secretary-general Angel Gurria today aims at tackling the biggest changes to international tax rules in more than a century.
The OECD chief said the plan, which seeks to close international loopholes used by multinational firms to avoid paying large amounts of tax, was "the most prominent step towards modernisation of the international tax system in a hundred years".
Gurria revealed that global efforts to crack down on tax avoidance had already identified 37 billion euros ($53 billion) from voluntary disclosure programmes involving 24 countries over five years, adding that "more will come".
''In 2013, we unanimously agreed to a 15 point BEPS action plan. This will help secure our revenue bases by limiting the opportunities for double non-taxation and ensuring a globally coordinated approach to international tax challenges.
''We are half way through an ambitious two-year work programme to update international tax rules for the 21st century. This weekend the OECD will deliver to ministers and governors the first tranche of work under the BEPS agenda.
''This work will help ensure that tax is paid where profits are made. This has never been straight forward and, in a digital economy, this is increasingly difficult.
"These are places where there is no link between the profit generated and the underlying value-creating activity."
The first recommendations of the BEPS has seven goals that would help to ensure companies pay tax in the countries where they generate income.
They were compiled by 44 countries, including all the Group of 20 members, Gurria said.
They include proposals on closing loopholes that allow for the abuse of tax treaties and to neutralise the "cash boxes" of multinational businesses kept offshore in low-tax jurisdictions, which Gurria estimated at about $2.0 trillion.
They also seek to address the impact of the digital economy on tax issues.
Multinational firms, including digital giants such as Apple and Google, have been accused by countries of using tax strategies that minimise their payments.
"Right now there is a unifying criteria -- everybody needs the money. We`re short," Gurria said as he acknowledged the impact of the tax revenue shortfall on countries still struggling to recover from the global financial crisis.
Gurria said he hoped the member nations would issue a formal statement to "get on with it" in implementing the action plan, such as introducing new legislation.
Further cooperation amongst our tax authorities at an international level will complement the fight against tax avoidance. This work will help our authorities better understand the activities of multinationals, assess where the risks lie and help target compliance activities, he said.
Australian Treasurer Joe Hockey, who is chairing the G20 meeting, said project "is about tackling aggressive practices which erode the tax base and artificially shift corporate profits to low- or no-tax jurisdictions", he said at the G20 meeting of finance ministers and central bankers in the Australian city of Cairns.
He said Australia is already taking steps to ensure that profits earned in the country are taxed there. The Australian Taxation Office is empowered to ensure that multinational companies operating in Australia are paying their fair share of tax.
The ATO is undertaking extensive enquiries and audits of multinational companies considered a risk to Australian tax collections, he said.
This, along with stronger transfer pricing rules and anti-avoidance rules will help maintain the integrity and fairness of our tax system and collect the right amount of tax.
Hockey also said, "We are not satisfied with the behaviour of some multinationals, where they create an uneven playing field for our small businesses, and unfairly shift the tax burden."
Supporting greater tax transparency and information exchange is a key way to crack down on tax avoidance and evasion.
Australia, he said, is already a leader in the automatic exchange of information. ''Tomorrow the G20 will endorse the finalised common reporting standard for the automatic exchange of information.
''This will allow us to identify offshore income of multinationals and high wealth individuals, so there will be nowhere to hide.''
The fight against tax evasion and avoidance is global. This is why it is so important that developing and low income countries are part of our solution. The G20 and OECD have been working hard to ensure that these countries benefit from our agenda. In Cairns, we will be agreeing to a multi-year agenda on tax and development.
The two-day G20 meeting in Cairns ends on Sunday.