Syria may be the corridor topic at the G20 summit, but the group's amazing consensus on battling tax avoidance will be its historic moment.
This year’s Group of 20 summit on Sept. 5-6 in Russia is not likely to find much consensus on Syria and its chemical weapons. But this “club” of wealthy nations has not been idle on another troubling issue.
Behind the scenes, the summit’s leaders have prepared to endorse a campaign against tax avoidance by globe-straddling corporations and individuals.
Most international tax avoidance, such as a company parking its profits in a low-tax country, is not illegal. It simply exploits differences between each nation’s tax practices. But the practice feeds into a perception of unfairness among those individuals and corporations that do pay taxes in full.
And the secrecy of this shadowy practice only courts suspicions of corruption. Indeed, many corrupt people do hide their wealth in tax havens, which particularly annoys those leaders in Russia and China battling corruption.
Most of all, the G20 campaign is an attempt to update a century-old international tax system to fit today’s digital and very globalized economy with its complex supply chains. Software, for example, can be written in a dozen countries, so where should its “value creation” be taxed? If Google collects data on French citizens and sells it to American advertisers, should it pay a tax?
There are no easy answers and yet there is amazing consensus to find them. The G20 is basing its campaign on a 15-point “action plan” released in July by the Organization for Economic Cooperation and Development, which includes 34 mostly developed countries. The plan’s major goal is to harmonize tax laws between countries by 2016 with some guiding principles. One of those principles: “Profits should be taxed where functions driving the profits are performed and where value is created.”