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EDITORIAL

Fighting tax avoidance

The G-20’s plan to stop fiscal evasion by multinationals requires the support of states

The G-20, like other multilateral organizations, tends to address economic problems when they have reached a dimension that makes them difficult to conceal and to handle. The group has realized there is a severe fiscal strangulation across the world as a result of multinational corporations’ ability to shift their profits to countries with lower tax rates. Big corporations have the benefit of a complex network of tax advisers who design tailor-made strategies aimed at reducing their tax burden to a bare minimum. Following the OECD’s lead, the Group of 20 wants to fight this planetary game of tax-base erosion with a 15-point plan, applicable for the next two years, and currently being analyzed at the Moscow meeting.

Fiscal equity dictates that companies with profits should not be paying between zero and five percent in taxes when workers all over the world, depending on their salaries, are forced to pay an average of between 30 and 60 percent. It’s not that this fiscal engineering by multinationals or strategic flagship companies is illegal — it is strictly legal — but it is imperative to fill the cracks between national and international legislation that enable this tax avoidance. Fiscal engineering is not to be condemned per se, but creating tax havens for oneself through the shunting of profits is an abusive practice.

The logical way to prevent taxes from being transferred elsewhere is to unify or at least bring national legislation more in line, closing off the exit points, and to replace the current system that avoids dual taxation for corporations — there are over 4,000 agreements in place worldwide — with another, more rational one that also prevents dual taxation, of course, but above all guarantees that international companies will pay what they owe in taxes.

It is a titanic task, easier said than done, and individual states must get involved more enthusiastically than they have so far. Just witness the complacent way in which Spain accepted tax deductions for corporate goodwill, against European doctrine.

Commendable initiative

The G-20 initiative is commendable and it will likely improve fiscal equity across the globe. At the very least it will put a stop to the most egregious cases, and if it coalesces properly, it could become a homogenizing force for global tax collection.

It is also worth remembering that there is another seed of tax inequality, this time at the national level: the persistence of hefty tax benefits for companies through numerous corporate tax breaks, originally granted for reasons of economic policy — to create jobs, for instance — but which are no longer efficient and no longer make sense. The tax authorities should also make an in-depth analysis of the hefty bill created by this kind of fiscal expenditure.