G-7 aims to stop tax evasion by multinationals

G-7 aims to stop tax evasion by multinationals
Flags of the G7 are displayed before the group meets at Dresden Palace Residenzschloss.

MUNICH - Leaders of the Group of Seven nations are set to agree on the creation of a system to counter tax evasion and tax avoidance by multinational enterprises, during the G-7 summit meeting to be held in Germany on Sunday and Monday, The Yomiuri Shimbun has learned.

G-7 leaders are expected to adopt a joint statement that urges nations to submit to arbitration in regard to conflicts between them over tax issues involving multinational companies, sources said. The arbitrator will be a third, uninterested country.

The mainstream approach to tax evasion by enterprises has usually been to create a subsidiary in a low-tax rate country and to shift profits there.

Though companies assert that this is a legal tax-saving measure, G-7 nations see the practice as creating unfair taxation. Thus, the G-7 nations have discussed measures to take.

The joint statement from the summit meeting is expected to incorporate wording to seek strengthened efforts for an arbitration process against tax evasion, they said.

Nations involved in tax disputes maintain tax sovereignty as a principle, so they search for a solution through mutual agreements such as bilateral tax treaties.

In many cases, however, it takes some time to find a solution as both countries insist on each country's right to taxation, resulting in a situation that allows tax evasion.

The US Congress said in a 2013 report that Apple Inc. shifted profits to subsidiaries in Ireland, where the corporate tax rate is low, making the country essentially function as a tax haven. Google Inc. and Amazon.com Inc. have also been criticised for similar practices.

The G-7 aims to jointly set as a core rule an arbitration system involving a third country in the hopes of obtaining understanding from emerging nations.

However, such emerging nations as India and China are said to have negative views on the idea as they consider an arbitration system with a third party as interfering in sovereignty.

The Organisation for Economic Cooperation and Development is to draw up rules for the system based on the G-7's joint statement. The rules are to be set out at a Group of 20 summit to be held in November.

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