FUKUOKA, Japan (Reuters) – Group of 20 finance ministers agreed on Sunday to compile common rules to close loopholes used by global tech giants such as Facebook to reduce their corporate taxes, a final version of the bloc’s communique obtained by Reuters showed.
Japan’s Finance Minister Taro Aso poses next to IMF Managing Director Christine Lagarde and Bank of Japan Governor Haruhiko Kuroda for a family photo during the G20 finance ministers and central bank governors meeting, in Fukuoka, Japan, June 8, 2019. Franck Robichon/Pool via REUTERS
Facebook, Google, Amazon, and other large technology firms face criticism for cutting their tax bills by booking profits in low-tax countries regardless of the location of the end customer. Such practices are seen by many as unfair.
The new rules would mean higher tax burdens for large multinational firms but would also make it harder for countries like Ireland to attract foreign direct investment with the promise of ultra-low corporate tax rates.
“We welcome the recent progress on addressing the tax challenges arising from digitization and endorse the ambitious program that consists of a two-pillar approach,” the final version of the communique showed on Sunday. “We will redouble our efforts for a consensus-based solution with a final report by 2020.”
Britain and France have been among the most vocal proponents of proposals to tax big tech companies that focus on making it more difficult to shift profits to low-tax jurisdictions, and to introduce a minimum corporate tax.
This has put the two countries at loggerheads with the United States, which has expressed concern that U.S. Internet companies are being unfairly targeted in a broad push to update the global corporate tax code.
Big Internet companies say they follow tax rules but they pay little tax in Europe, typically by channelling sales via countries such as Ireland and Luxembourg, which have light-touch tax regimes.
The G20’s debate on changes to the tax code focus on two pillars that could be a double whammy for some companies.
The first pillar is dividing up the rights to tax a company where its goods or services are sold even if it does not have a physical presence in that country.
If companies are still able to find a way to book profits in low tax or offshore havens, countries could then apply a global minimum tax rate to be agreed under the second pillar.
Earlier this year, countries and territories agreed a roadmap aimed at overhauling international tax rules that have been overtaken by the development of digital commerce.
Reporting by Stanley White and Jan Strupczewski, Editing by Kim Coghill