Toru Hanai / Courtesy Reuters

The Truth About Taxes

How to Close the Loopholes on Multinationals

In recent years, Occupy Wall Street hasn’t been the only group worried about how the spoils of economic growth have been distributed. Governments worldwide increasingly share the sentiment: perhaps, like the pinched middle classes, they feel that corporations are taking too much of the profits for themselves. And so, at a June 2012 summit, G-20 leaders resolved to get multinational corporations to pay more taxes. They asked another international organization, the Paris-based Organization for Economic Cooperation and Development (OECD), to investigate and suggest what might be done. Under normal circumstances, this is where the rest of us would stop paying attention: reports and recommendations can take years to formulate and are often convenient substitutes for real political reform.

But these are not normal circumstances. At least, not so far. The OECD is moving fast, and corporate taxpayers are already struggling to understand and adjust to impending changes that could boost their tax bills. Seven months after that June 2012 G-20 summit, the OECD produced a report describing the problem, which it calls (tax) base erosion and profit shifting. Basically, that means that countries’ tax bases, or total tax revenues, aren’t growing as they should because corporations are shifting their profits elsewhere. At the G-20’s next meeting, in June 2013, OECD presented a 15-point plan to address the problem, which the G-20 promptly approved. The next step, then, comes when the G-20 meets this month in Canberra, Australia. There, finance ministers will decide on implementing the first parts of the plan.

It is hard to overstate just how quickly -- at least in bureaucratic terms -- all of this has happened. For many in the business world, that is taken as a measure of the immensity of political interest in reform. But other key constituencies increasingly acknowledge just how out of date the system is -- the International Monetary Fund says that current laws are more beneficial to developed countries than to developing ones. And corporations themselves are often willing to acknowledge

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