LIMA — Taking up the G20 presidency in 2016, China will advance the implementation of the newly approved Base Erosion and Profit Shifting (BEPS) Action plan, said Chinese Finance Minister Lou Jiwei during the on-going World Bank Group and International Monetary Fund Annual Meetings in Lima on Oct 9.
The detailed final version of 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 on Oct 9 in a conference 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 formulated 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,” the minister said.
This year’s annual meetings were held at a critical time of global development. Speaking of the estimated achievements during the meetings, 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 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.
Lou believes that the slow growth of emerging economies is relative. For example, from 10 percent between 2009 and 2011 to the current 7 percent, the growth rate of China has become slower. However, 7 percent is still a very high growth rate at the international level.
“Ultrahigh speed of growth is not sustainable, neither is the over-reliance on government investment and real estate,” Lou said.
“China needs structural transformation and a change in development mode, and a properly slower growth is a sound process,” he said.