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G20: Is Offshore Doomed to Disappear?

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The multinationals: exposed, but powerful targets

Finance ministers of the major world economies gathered in a preparatory council for the G20 summit in September, to tackle the problem of tax evasion by multinationals.

The latter, it seems, have a propensity to push tax optimization to the limit. The fiscal policy of these corporations endowed with large capital leverage takes advantage of any flaw that may exist in international tax conventions. The phenomenon is almost institutionalized in the United States, if we take notice of the names that make the headlines most often: Google; Amazon; Starbucks; and of course Yahoo; that was recently under investigation in the United Kingdom.

Measures, most certainly; but insufficient measures

In response, the OECD has introduced a plan of action to:

“OBLIGE firms to provide information on the geographical origin of their income and on the utilization of their offshore subsidiaries.”

However, we are forced to recognize that some elements are suspicious:

  • The plan must first be adopted by all of the members of the G20; which is not apodictic because divergent interests and tax conventions are more real on paper than in actuality.
  • The scale of action is reduced, 20 countries, albeit the world’s most powerful, do not represent a block with any power compared to the hundred other countries and their internal markets that would be pleased to host a large international group.
  • Once adopted, the plan will undergo a gestation period of two additional years before becoming effective, the time necessary for the “tax optimization director” of the major groups concerned to find solutions to the measures that have been put in place.

However commendable the initiative of the G20 may be, it is utopian to believe that its effects in the short or long-term will be sufficient to prevent tax optimization schemes from prospering.

 

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