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Friday 14 Dec 2018 | 16:59 | SYDNEY
Friday 14 Dec 2018 | 16:59 | SYDNEY

'Luxleaks' will refocus the G20 on tax reform



14 November 2014 09:22

The G20 started in 1999 as a somewhat technical grouping of finance ministers and central bankers. That all changed with the Global Financial Crisis which turned it into a virtual 'global government' comprising  a regionally balanced choice of the world's largest economies,  represented at the leadership level.

The personal presence of national leaders at the annual G20 Summit from then on has insured its intensely political nature. The crises in the Middle East, Ukraine and the triangle between China, Japan and the US — not to mention the newly announced US-China climate deal — are thus likely to dominate this weekend's summit in Brisbane, threatening to push financial and fiscal tasks to the background.

Enter 'Luxleaks', the unearthing by the International Consortium of Investigative Journalists of an important number of confidential 'tax rulings' by the Luxembourg Government ensuring favourable corporate tax rates for a number of globally active companies including some of the largest and best-known names in international business.

Just in time to grab the headlines back for a core G20 issue: tax.

A recent lecture I attended by OECD Secretary-General Angel Gurria underscored just how much has already changed, and will continue to in the near future, with regard to the basic principle of tax activity by the state. Tax should be levied from individuals (income tax) and the private sector (corporate tax), and spent by the public sector for the benefit of all, where the centre of activity and thus the profit of the taxed subjects are located.

Under Gurria, the OECD has established itself as a sort of secretariat for all economic matters dealt with by the G20. The Organisation still only counts 38 members, primarily from the developed world and of course including Australia, but it entertains close relations with a multitude of countries all over the world including all G20 members.

The OECD guidelines for Automatic Information Exchange between national tax authorities, together with the national US equivalent FATCA, has already had wide-ranging consequences in the hitherto unassailable world of international banking, including on that of Switzerland. All of them are on their way out onto the ash heap of international economic history.

Whereas the media spotlight has been mainly on 'tax optimisation' (if not outright tax fraud) by individuals, the global financial and economic crisis has had the unique effect of focusing the minds of G20 political decision makers onto what were basically legal but ethically questionable corporate tax schemes. Thanks to 'Luxleaks', we now know, for instance, that the Australian arm of Swedish furniture giant IKEA paid just $31 million in taxes on $4.76 billion of turnover from 2002 to 2013. This was made possible using complicated financial maneuvers through the Netherlands Antilles, Luxembourg and Switzerland.

In two weeks, yet another of Switzerland's famous referenda will take place. The Swiss left proposes a national ban on cantonal (Swiss provinces with far reaching fiscal autonomy) flat-tax schemes for rich foreigners. Other than some prescriptions for a minimum physical presence at their Swiss tax domicile (difficult to supervise and not always enforced), some 4000 mainly super-rich foreign individuals are so far not taxed on their total wealth and income. They are only taxed on a low multiple of the worth of their Swiss real estate holdings, and not at all in their country of origin, thanks to bilateral double taxation treaties.

Even in Switzerland the yawning gap between the haves and have-nots is growing further, at a time when the need for welfare expenses clashes with ever tightening national budgets.

Whatever the outcome of this particular referendum, 'Luxleaks' has refocused the world's attention onto some extremely important measures to be taken within mature economies. If Brisbane can further kick along the particular ball of improved tax justice, Australia will have fully merited its temporary place in the global sun.

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