Five questions answered on the crackdown on tax avoidance

G20 finance ministers make an announcement.

G20 finance ministers meeting in Moscow today announced a global crackdown on tax arbitrage by multinational companies. We answer five questions on the proposed crackdown.

Why has this crackdown been launched?

It’s been announced in a bid to tackle base erosion and profit sharing by multinational firms and hopes to address recent sustained criticism of the low tax paid by firms such as Google, Amazon and Starbucks.

It’s hoped it will push up tax rates for firms that specifically arrange their tax affairs so they only pay a small amount. 

What’s the plan?

An action plan has been drawn up by Paris-based Organisation for Economic Co-operation and Development (OECD) for the G20. It sets out more than a dozen ideas to block gaps between national tax systems and tackle practices that artificially separate taxable income from the activity that generates it.

It includes proposals to tackle abuses of tax and to prevent tax avoidance by shifting intangibles between group companies.

It also aims to neutralise the impact of “hybrid” structures used to reduce billions of dollars of tax.

Other countries that are outside the OECD, such as China and India, will be invited to take part in the programme.

What will the outcome be?

This will depend on the co-operation of governments over the next two years, but it is largely hoped that “the golden age of ‘we don’t pay taxes anywhere’ is over,” as said by Pascal Saint-Amans, the top tax official at the OECD.

But this may not happen if commitments of business and governments dwindle.

What have the experts said?

Will Morris, chair of the BIAC’s tax committee, speaking to The Financial Times, said: “In some areas, the international tax system has not kept pace with globalisation and changing business models, and it is appropriate to look again at those areas and consider, based on all the evidence, whether any changes are required.”

What have the critics said about this initiative? 

A campaign group that pushes for tax reform, The Tax Justice Network, also speaking to the FT said:  “piecemeal recommendations for states to apply patches to the increasingly leaky international tax system...would be like trying to plug the holes in a sieve.”

Photograph: Getty Images

Heidi Vella is a features writer for Nridigital.com

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.