G-20 falls short on how to end profit-shifting practices by MNCs

THE G-20 summit last week touched all the right bases in setting out what needs to be done to get that extra 2.1 percentage points of global growth above currently projected levels over the next five years. So there were references to the need to invest in infrastructure, to boost trade by easing restrictions, to reduce barriers to competition and to create jobs and encourage female participation in the workforce.

But for a variety of reasons, public attention on this year's talks was on what was to be proposed on the vexing issue of "tax avoidance, particularly, base erosion and profit shifting (BEPS) to ensure profits are taxed in the location where the economic activity takes place", as the G-20's own website puts it. It was acknowledged that international tax laws had failed to keep pace with the global business environment. Thus, multinational corporations have found it in their interest to book their profits in low-tax jurisdictions while actually reaping profits elsewhere. And, unmentioned in any G-20 document, they do this with the help of top tax consultancies and accounting firms and the very best legal brains in international tax law.

The latest example of this is the story of how Luxembourg saved billions in taxes for giant corporations such as Amazon. Luxembourg's tax regime is now under scrutiny by the European Union. But Luxembourg is not the only European country that has enabled MNCs to avoid tax. The Dutch enabled Starbucks to avoid taxes in Britain until last year despite doing sales of more than £3 billion (S$6.09 billion) over the previous three years.. And there are others. The effective corporate tax rate in Luxembourg is about 1.1 per cent. In Holland and Ireland, it is 2.4 per cent, and perhaps just to keep things interesting, Britain's own offshore tax havens effectively demand a mere 3.1 per cent in corporate taxes.