G20 Finance Ministers and Central Bank Governors Meeting: Base Erosion and Profit Shifting


Remarks by Angel Gurría, OECD Secretary-General

Moscow, Saturday 16th January 2013

Minister Siluanov,
Ministers and Governors,
Ladies and gentlemen,

Many of you and your Leaders have expressed concern about the fact that multinationals are able to escape corporate taxation. The media attention on this issue is unprecedented. At your November 2012 meeting you expressed support for the OECD work in this area and asked for a report. Here is a report which sets the record straight on BEPS (base erosion and profit shifting). There are three key issues to focus on:

1- The tax rules have not kept pace with the way business operates

Although there are some egregious cases of avoidance and they are being tackled, there is a more fundamental issue: the world has changed and the tax rules have not adapted. The current rules allow multinationals to report profits for tax purposes in locations different from where their business activity takes place. And they do just that. The digital economy, for instance, is a clear and telling illustration of these practices.

2- It is the responsibility governments to fix the problem

Some businesses have gone too far and tax administrations must be tough on compliance.  However, the tax planning strategies that are outlined in the report are mostly legal in the countries in which they are implemented. It is therefore up to the governments to revise the rules or introduce new rules. We must ensure the fairness of the corporate tax system. In the context of fiscal consolidation, with VAT and personal income tax increases, the perception that some corporates do not contribute their fair share has become a serious political and social issue. And we cannot blame others for using rules that we ourselves have put in place.

3- Only collective action can deliver results

There is an obvious need for action here. However, it is also clear that no single country, acting on its own, can fix the issue. To address BEPS, collective action is the only viable way forward to achieve results. Collective action will enhance and support governments’ national policy efforts to protect their tax base.

Multinational companies should understand that collective action in this domain is also in their best interest. It will protect them from uncertainty, i.e. from an uncoordinated and disorderly race by individual governments to tax multinational companies, and potentially from double or triple taxation. This in turn would have a negative impact on investment, and thus on growth and employment globally, a clearly undesirable outcome in today’s circumstances. As G20 Leaders said last June, multilateralism remains our best asset to resolve the global economy's difficulties.

What’s next?
Your senior experts are already working on an Action Plan to be agreed by June 2013. The Action Plan will also indicate a timeline for implementation. We cannot discuss these issues without taking immediate action. We know that there are legal constraints, like the existence of 3000 bilateral tax treaties and the political difficulty of getting domestic legislation passed, but clearly, not acting is not an option.

On the contrary. Acting also means reaching agreement on how to address the problem in a timely manner. The perspectives of industrialised, emerging and developing countries must all be taken into account if we are to devise a new international tax architecture. As countries’ views differ on some issues, this requires a strong will to compromise from the part of everyone involved. Your expectations are high and we, at the OECD are committed to deliver.  We will go as far as you, collectively, are ready to go.

Let me finish with a quick word about the Global Forum and automatic exchange of tax information.

•    To date, the Global Forum has delivered very positive results, both in terms of peer review reports and of its broader objective of facilitating the exchange of tax information. Almost 100 peer review reports have been completed in 3 years. There has also been a continuing expansion of the Global Forum, which now counts 118 members.

•    However the real test for the Global Forum only starts now as it begins to evaluate compliance with the standards in practice. A key output of this second phase is the assignment of ratings. The ratings exercise will begin in earnest next September and will take place over the next 2 years – it is vital that the G20 keeps tax transparency high on the agenda during this period.

•    As requested by the G20 Finance Ministers, by April 2013, a progress report will be prepared on the effectiveness of information exchange practices.

Finally, the OECD continues its work to improve the effectiveness of automatic exchange of information as a compliance tool and to ensure that the information exchanged will remain secure and confidential. Let me recall that a common model for automatic exchange, including the development of common reporting and due diligence standards for financial institutions would avoid a proliferation of different models and reduce costs for both governments and business. Work on these common standards has already commenced, and we welcome the US legislation referred to as FATCA  as a basis for an intergovernmental agreement on automatic exchange of information.

Thank you.