China has pledged to promote a plan to stop multinational companies from avoiding taxes by shifting profits to destinations with lower corporate tax requirements. The plan was endorsed by G20 finance ministers on Oct 9 during the annual meetings of the World Bank and the International Monetary Fund in Lima, Peru.
Strengthening the international taxation system. The Base Erosion and Profit Shifting plan, or BEPS, will see 20 economies close numerous taxation loopholes that allow international companies to avoid paying tens or even hundreds of billions of dollars in taxes a year.
It applies to companies with revenues of over 8 hundred and 50 million dollars, and will force them to pay taxes in the country where their business activities generate taxes.
While the plan is not legally binding, the Organization for Economic Cooperation and Development, which was instrumental in putting the plan together, says implementation is the key.
“So we needed to address BEPS not just to ensure the sustainability of our public finances, but also to recover the trust of our citizens. We now must move to the next phase, which consists of a well defined trilogy: implementation, implementation, implementation,” said Angel Gurria, secretary-general of OECD.
Attending the meeting in Lima, Chinese Finance Minister, Lou Jiwei, says China will actively promote the implementation of the plan. China takes over the rotating presidency of the G20 next year.
Lou says each country should solve its own problems and promote the coordination of the international taxation system.
“The primary and most important thing is fairness, and fair competition. Although each country focuses on different aspects, one thing that needs to be emphasized is fairness and making the global taxation system move towards a standard-based direction,” Lou Jiwei said.
Base erosion and profit shifting is believed to be sapping economies of the resources needed to jump-start growth. The plan is also aimed at tackling the effects of the global economic crisis and creating better opportunities for all.