BRISBANE, Australia – The politically-fraught issue of forcing big, multinational companies to pay more tax will be high on the agenda at this weekend's G-20 summit in Brisbane.
There has been an ongoing effort by governments to crack down on tax avoidance, with companies such as Google and Amazon facing criticism for moving profits earned in one country to other countries with lower tax rates. The G-20 also tackled the issue at last year's summit, vowing to set up a system that would compel companies to pay tax in the countries where they make money.
Last month, 51 countries signed an agreement under which they will automatically exchange data collected by financial institutions as early as 2017. The move is designed to increase transparency and discourage tax cheats.
The problem, known as "base erosion and profit shifting," has stoked public fury at a time when the global economy is still struggling to recover from the 2008 financial crisis. Critics see it as an outrageous example of the powerful being given an unfair advantage, while the poor suffer the consequences. The companies argue they're not breaking any laws.
Just last week, leaked documents suggested that hundreds of big companies such as Pepsi and IKEA had organized tax-lowering deals with the tiny nation of Luxembourg. The news prompted swift condemnation from Luxembourg's European neighbors, many of whom have imposed harsh and hated austerity measures to keep government budgets afloat following the global recession.
Public anger is likely the reason the issue has taken such prominence on the G-20's agenda. But will the group, which represents the 20 biggest industrialized and developing economies, take any concrete action?
"They can't, because the problem is, multinationals operate across many jurisdictions — all those jurisdictions want to claim taxing rights," says Rick Krever, head of the Department of Business Law and Taxation at Australia's Monash University.
"Under the current system, multinationals can decide where in the world their profits are located. The shareholders are absolutely indifferent. And if you can locate them in the place that reduces your taxes, the shareholders are happy."
In other words, there's little motivation to change the system.