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G-20 Introduces First Guidelines to Overhaul International Taxes

The Organization for Economic Cooperation and Development has revamped efforts to overhaul the international tax system as it presented its first set of guidelines to finance ministers of the group of 20 largest economies. The guidelines are an attempt to make it more difficult for companies to shift profits to low tax countries.

The G-20's overhaul aims to modernize a web of 3,000 bilateral tax treaties and national tax rules dating back to the 1920s that allow companies to reincorporate overseas to lower tax jurisdictions, with no regard to where that company earns its profits.

The Committee on Fiscal Affairs agreed upon the proposals and is expected to produce a second and final set of proposals next year. The committee is made up of representatives from 34 countries that are also members of the OECD, two candidate nations, and eight large developing economies, including China, India, Brazil, Russia, Indonesia, and South Africa.

Pascal Saint-Amans, the OECD official leading the overhaul, said its member's ability to agree upon such a complex overhaul in such a short amount of time indicates their eagerness to eliminate any and all loopholes that allow companies to minimize tax payments.

"This is extremely ambitious," Mr. Saint-Amans said in a news conference. "We are delivering. As soon as they are published, they will have an impact. They reflect very strong agreement."

Tax experts warn that proper domestic legislation is critical for enforcement, which could take many years to complete and implement.

"History has shown that countries act in their own interest, and accept those recommendations they like," said John Wonfor, global head of tax at the business advisory firm BDO International. "We might not get the coherence the OECD would like."

Regardless, Mr. Saint-Amans suggests the guidelines have already started curbing the behavior of international companies.

"If you're a tax planner, it is difficult to sell your scheme to a company that knows this will be over in a few years," said Mr. Saint-Amans, director of the OECD's Centre for Tax Policy and Administration. "This will give them time to undo those schemes. We're having an impact already even though it hasn't come into force."

Source: Hannon, Paul, "G-20 Plans to Overhaul International Corporate Tax Systems Still on Track," The Wall Street Journal, September 16th, 2014

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