Now, the Multinational Companies or MNCS will have to pay more taxes if they wish to trade in G20 nations as the group has endorsed the plan designed by the Organization for Economic Cooperation and Development (OECD). The 20 finance ministers from the G20 took a bold move the last Friday in Moscow. Traders need to understand that this will be crucial in driving the forex market.The measure is meant to crack down tax-avoidance wherein they route the money through tax heavens. According to the OECD, “It is a turning point in the history of international co-operation on tax.” It will also tackle ‘global tax chaos’ which is being caused by MNCS such as Starbucks and Google which are being blamed for shifting profits to tax heavens.
Rewriting the Existing Rules and Regulations
Though it is a moot question whether the G20 countries will be able to impose higher taxes on the MNCs evading them, the effort on the part of earlier seems in right direction as the ambitious action plan will rewrite the existing international rules/laws that will prevent the MNCs evade taxes where they operate.
A recent case of Vodafone in India’s Supreme Court received a lot of attention from the media as the government of India accused the company for evading taxes routing the money through tax heavens. Vodafone bought Hutch, a telecom company in India but registered outside, the company did not pay taxes on the transaction as the archaic tax law does not impose such tax. The case is not isolated one as there are several other cases that have been registered recently where MNCs evaded taxes dodging the tax laws.
Even Advocates of No Taxes Mulling a Plan for Tax Imposition There are tax heavens that flourish on the maxim that no taxes attract more businesses; however, OECD is not of any such opinion as according to it MNCs must pay taxes where they operate. Many of the national laws in some of these countries are archaic and unable to cope with the latest changes in the international trade and commerce.
The OECD release says, “National tax laws have not kept pace with the globalization of corporations and the digital economy, leaving gaps that can be exploited by multinational corporations to artificially reduce their taxes.”
The organization further says that in the era of digital economy and a borderless world of products and services that too often do not fall within the tax regime of any specific country, leaving loopholes that allow profits to go untaxed; however, this has to be changed and new tax laws have to be passed to bring MNCs under taxation.