The world’s top economies need to deepen cooperation on tax collection as companies seek to minimize the amount they pay to governments, finance ministers said Saturday as they vowed to work to tackle excess production capacity in steel and some other industries.
Tax collection has become controversial in many countries, with multinational firms from Google to Starbucks facing accusations of not contributing appropriately to the economies where they make their money, and multi-billion-dollar merger proposals being partly driven by tax considerations.
“When the current cross-border tax rules were developed they were tied to concepts that reflected geography and national boundaries,” U.S. Treasury Secretary Jacob Lew told G20 finance ministers meeting in the Chinese city of Chengdu.
“When we look at technology and cloud computing a lot of that has become harder to define.”
“There needs to be a common standard across countries on important issues of transfer pricing,” he said at a high-level symposium on tax policy, adding that countries had to deal “collectively” with issues that lead to non-taxation.
Such moves would transform the global business environment, and could see multinational companies paying more tax, cutting returns to shareholders.
Closing loopholes, Lew said, would change the choices businesses make.
Chinese finance minister Lou Jiwei said that enterprise and international trade structures had changed “dramatically, imposing severe challenges to the existing international tax system”.
The G20 should promote “international coordination and cooperation in taxation”, he said.
The G20 has previously supported proposals requiring authorities to share the identities of shell companies’ real owners, and backed creating a blacklist of international tax havens that do not cooperate with information-sharing programmes.
But the discussion as the G20 finance ministers and central bank chiefs met in Chengdu, in southwestern China, was wider, addressing base erosion and profit shifting, known as BEPS.
The term refers to companies using accounting techniques to move their profits to low- or no-tax jurisdictions, reducing the amounts they are liable to pay.
In a draft statement obtained by Reuters, the G20 finance ministers and central bank governors meeting in Chengdu said that excess capacity problems, “exacerbated by a weak global economic recovery and depressed market demand, have caused a negative impact on trade and workers.”
The document, which is still subject to change until a final version, adopted the same language agreed by G20 trade ministers on July 10.
Excess capacity in steel industry has been a hot-button issue for many G20 countries this year amid a slowdown in global demand that has led to a steel glut, layoffs and idled mills.
Officials from the United States and other countries have accused China, which produces over half the world’s steel, for keeping too many steel plants afloat with subsidies and other government support and allowing excess production to be dumped onto world markets.
The U.S. Commerce Department has imposed hefty anti-dumping and anti-subsidy duties against a number of Chinese steel products in recent months, in some cases more than 250 percent of the selling price. On Thursday, it levied duties of up to 25.6 percent on imports of cold-rolled flat steel used in cars and appliances from Britain, Russia, India, Brazil and South Korea.
G20 finance communiques in February and April made no mention of the problem. The statement does not single out China or any other country.
“We recognize that excess capacity in steel and other industries is a global issue which requires collective responses,” the group said in its draft. “We also recognize that subsidies and other types of support from governments or government-sponsored institutions can cause market distortions and contribute to global excess capacity and therefore require attention.”