UK and Germany agree tax crackdown on multinational companies

George Osborne Close Up

George Osborne has joined forces with the German finance minister, Wolfgang Schäuble, to announce an international crackdown on tax avoidance by big multinationals, such as eBay and Amazon.

Osborne said he and Schäuble, meeting at the G20 finance ministers's summit in Mexico, had called for "concerted international co-operation to strengthen international tax standards that at the minute may mean international companies can pay less tax than they would otherwise owe".

Neither man was eager to identity individual corporate culprits, but government sources said the spread of e-commerce and the ponderous nature of international corporate tax rules have left governments trailing behind multinationals as they shift profits around the globe.

The two men, determined to give the issue a political push, said they would back the OECD's current work on identifying possible gaps in the standards, as a first step in promoting a better way of dealing with profit shifting and base erosion of corporate tax at the global level. The OECD is viewed as the guardian of global tax standards.

Trying to show a balance between his defence of low tax rates and the need to act against firms that repeatedly pay virtually no tax, Osborne said: "We want competitive taxes that say Britain is open for business and that attract global companies to invest in and bring jobs to our country, but we also want global companies to pay those taxes. The best way to achieve that is through international action that ensures strong standards, without pricing ourselves out of the global market."

The joint statement by the two countries – a rare example of Anglo-German co-operation – said: "International tax standards have had difficulty keeping up with changes in global business practices, such as the development of e-commerce in commercial activities."

It adds: "As a result, some multinational businesses are able to shift the taxation of their profits away from the jurisdictions where they are being generated, thus minimising their tax payments compared to smaller, less international companies."

In the statement, Britain and Germany said they expect the first report from the OECD at the next G20 meeting in Russia in February 2013.

The two men agreed their joint approach when the chancellor visited Berlin on Thursday. The co-operation comes ahead of a meeting between David Cameron and Angela Merkel on Wednesday.

Government sources said there was growing international political support for a crackdown on some of these multinationals that were in some cases either paying next to no tax or funelling profits to low corporation tax regimes such as the Cayman Islands, the Netherlands or Ireland. The sources added there was equal determination to act in the US, even though many of the companies under the microscope are US-based.

Changes to the international standards have to be agreed at the international level. But the British government believes there have been time lags in updates to technical tax standards that may be creating unintentional gaps in them. The OECD will present the next stage of its proposals to its committee of fiscal affairs (CFA) on 16 November in Paris.

Britain has the lowest rate of corporation tax in the G7, and has cut its rate by more than any other G20 country over the past two years (from 28% in 2010 to 22% by 2014). In the last year, around half of the £136bn of taxes paid in the UK by the biggest businesses, came from foreign-owned businesses; while inward investment created or safeguarded more than 100,000 jobs.

THe HMRC has raised more than £1.5bn since March 2010 through increased efforts in tackling transfer pricing. The transfer pricing rules aim to ensure that multinationals pay the right amount of tax by determining the taxable profits of each company as if it were an independent entity trading on arm's length terms with other members of the same group.

Powered by Guardian.co.ukThis article was written by Patrick Wintour, for guardian.co.uk on Monday 5th November 2012 17.03 Europe/London

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