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31 countries agree to share tax data as Google comes under fire for its deal in the UK

An agreement has been reached between 31 countries for the automatic exchange of information on the taxes paid by, and the economic activity of, multinational businesses. This increase in transparency between countries should help tax authorities understand if multinationals are actually paying what is considered a fair rate of tax in the countries where they do business and make profits.

The Organisation for Economic Co-operation and Development (OECD) brokered the deal as part of the OECD/G20 BEPS (Base Erosion and Profit Shifting) Project, which aims to provide governments with solutions for modernising international tax rules. The OECD has developed a standardised method for country to country reporting which will be implemented through the Multilateral Competent Authority Agreement (MCAA).

“Country-by-Country Reporting will have an immediate impact in boosting international co-operation on tax issues, by enhancing the transparency of multinational enterprises’ operations,” said OECD Secretary-General Angel Gurría. “Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on the key indicators of multinational businesses. This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax, and would not have been possible without the BEPS Project.”

The OECD/G20 BEPS Project set out 15 key actions to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created. The OECD said that BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from mulitnationals. The countries that signed the deal are Australia, Austria, Belgium, Chile, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mexico, Netherlands, Nigeria, Norway, Poland, Portugal, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland and United Kingdom.

This international agreement came as US technology giant, Google, was criticised for the tax deal it had made with the UK authorities. Google said that it had agreed to pay £130m in back taxes after an audit of its accounts by the UK tax authorities. Google will also be paying tax in the future in the UK-based on its UK sales. Matt Brittin, head of Google Europe, told the BBC: “The rules are changing internationally and the UK government is taking the lead in applying those rules so we’ll be changing what we are doing here. We want to ensure that we pay the right amount of tax.”

However, politicians were still critical of the sum agreed with Google with John McDonnell MP, Labour’s Shadow Chancellor requesting more information on how this figure was agreed upon. At Prime Minister’s Questions Jeremy Corbyn, the Leader of the Opposition,  said that independent experts have suggested that Google is paying an effective tax rate on its UK profits of around 3%  (corporation tax rates are set at 20%). Corbyn quoted the Conservative Mayor of London, Boris Johnson describing the figure as “quite derisory”.

In response to Corbyn, David Cameron, the Prime Minister, said: “We have put in place the diverted profits tax, which means that this company and other companies will pay more tax in future. They will pay more tax than they ever paid under Labour, when the tax rate for Google was 0%.”

He added, “When I came to power, banks did not pay tax on all their profits—allowed under Labour, stopped under the Tories; investment companies could cut their tax bill by flipping the currency their accounts were in—allowed under Labour, stopped under the Tories; and companies could fiddle accounting rules to make losses appear out of thin air—allowed under Labour, stopped under the Tories. We have done more on tax evasion and tax avoidance than Labour ever did.”

What do you think?