Plan to stop tax shift to be enforced

TAKING up the G20 presidency in 2016, China will advance the implementation of the newly approved Base Erosion and Profit Shifting plan, Minister of Finance Lou Jiwei said during the World Bank and International Monetary Fund Annual Meetings in Lima.

The detailed final version of the BEPS plan, designed to stop multinational companies from avoiding tax by shifting profits to destinations with lower corporate tax requirements, was endorsed by finance ministers from the G20 group during the annual meetings. It will be submitted for the final approval during the G20 Antalya Summit in November.

The plan, led by the G20, involves reforms in the current international tax rules, standardizing tax collection and management of domestic and cross-border economic activities to fight international tax evasion and create favorable conditions for global trade and investment.

With the plan, the next focus should be on implementation, which is the most difficult part, Lou said, pointing out that tax policies adopted by some members caused unfair competition by taxing less compared with those in other economies.

Many multinational corporations do not pay taxes in countries where business activities generate profits but transfer the profits abroad to avoid taxation. Developing countries suffer most from that, Lou said.

“To solve these problems, firstly each country should accelerate domestic reforms and legislative process to promote fair competition; secondly, the international tax rules should be regulated to establish a more inclusive, transparent and fair mechanism,” he said.

This year’s annual meetings were held at a critical time of global development. Lou suggested the World Bank further improve its ability in monetary mobilization.

“Though the World Bank has made great efforts in recent years, there is still a big gap to meet the financing demands of developing countries,” he said.

Enriching the capital base and optimizing the balance sheet are effective ways to enhance the financial sustainability of the World Bank. Meanwhile, it should improve cooperation with emerging multilateral development organizations including the Asian Infrastructure Investment Bank and BRICS’ New Development Bank, according to Lou.