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Originally published September 5, 2013 at 7:45 PM | Page modified September 6, 2013 at 6:35 AM

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G-20 focuses on mutual enemy: tax havens

The Group of 20 international economic ministers is expected Friday to agree to enact new tax laws that would limit the ability of multinational corporations like Apple and Starbucks to legally avoid paying taxes by operating subsidiaries in certain countries.

The New York Times

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MOSCOW — Many of the leaders of the world’s richest economies are meeting at the eighth Group of 20 summit in St. Petersburg, Russia, with the economic winds at their back, ready to sign on to a sweeping new set of tax rules for multinational corporations.

They are expected Friday to agree to enact new laws that would limit the ability of multinational corporations like Apple and Starbucks to legally avoid paying taxes by operating subsidiaries in certain countries.

The practice came to the fore during the global recession as national coffers were strained and leaders looked for new sources of revenue. The recent positive economic news has not dampened that desire or relieved the pressure to crack down.

In the United States, economic news has pointed to continued growth. On Friday, the Labor Department is expected to issue a healthy jobs report with 180,000 jobs created in August. It is the last set of economic data from the government before the Federal Reserve meets to consider tightening monetary policy and raising interest rates in the U.S.

On Thursday, the Institute for Supply Management issued its closely watched report that said service companies are hiring more workers and fewer people are applying for jobless benefits. Auto sales are up sharply.

Recent economic reports from Britain, France, Germany and other countries in Europe’s northern tier have also been optimistic, although central bankers there remain cautious.

If the U.S. government reports that even more jobs were created, analysts expect that the 10-year Treasury note, which rose to 3 percent Thursday, will rise further.

Currencies in many of the developing economies that had benefited from the expansionist policies of the Federal Reserve have recently been falling sharply against the dollar as the Fed signaled it is tightening and money flows have reversed. Growth in many of the BRICS economies — Brazil, Russia, India, China and South Africa — that had buoyed global growth have slowed as the engine of growth shifts to the U.S., Japan and northern Europe.

The heads of state have two days of meetings and will issue a communiqué Friday that is expected to address the tax overhaul and other questions of economic policy.

Though the meeting is overshadowed by the crisis in Syria, and deep divisions between nations over possible U.S. military action there, the heads of state are still expected to collectively endorse an economic policy statement that will encourage the continuing fiscal stimulus, or government spending, to help the recovery.

Germany, in the driver’s seat of European economic policy, had objected but appeared ready to acquiesce to a statement endorsing fiscal stimulus at a ministerial-level meeting in Moscow in July.

That meeting also encouraged governments to carefully coordinate tapering off monetary stimulus programs such as the Federal Reserve’s quantitative easing in the U.S. The end of cheap credit has dampened growth in emerging markets as investors bring money back to the U.S. to take advantage of rising interest rates.

On Thursday, Russia’s deputy minister of finance, Sergei A. Storchak, said the leaders were set to endorse a similarly worded statement Friday.

“It’s not going to be more than the agreements that were reached in Moscow,” Storchak told Reuters at the summit, being held in the restored, Czarist-era Catherine Palace in St. Petersburg.

In a reflection of the depth of concern about currency outflows caused by rising interest rates in the U.S. — meaning investors can obtain similar returns as in emerging markets at far lower risk — the BRICS nations announced an intention to create a collective fund of $100 billion to defend their weakening local currencies. It was unclear when it would be operating and able to intervene in currency trading.

The effort at tax reform, if implemented widely, would squeeze more money from multinational corporations and shift a portion of the global tax burden from individuals and small businesses to large corporations.

The proposal is for countries to better coordinate tax treaties to close loopholes that multinational corporations exploit by registering in such tax havens as Delaware or the Cayman Islands. Another tactic of concern is shifting profits to low-tax jurisdictions and costs to high-tax ones.

In one widely cited example, Starbucks last year paid no corporate tax in Britain despite generating sales of nearly $630 million from more than 700 stores in that country. The company volunteered to pay more in coming years.

Apple, despite being the most profitable U.S. technology company, avoided billions in taxes in the United States and around the world through a web of complex subsidiaries.

Even with the high-level agreement, it will take years to put in place and companies that benefit and have structured their business to comply with the laws in place today, are all but certain to lobby to retain these advantages. The G-20 governments endorsed a draft of the tax agreement in Moscow in July.

The reform would encourage nations to adopt new, standardized tax treaties, to replace the web of thousands of such agreements that exists now.

Russia is hosting the G-20 for the first time since the group was formed in 1999 and began discussing strategies for priming the global economy.

Russia’s Storchak said in an interview before the opening meeting Thursday that Russia had asked all governments to explain their spending plans for the years ahead, and that most had complied and agreed to release the results of this survey during the forum.

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