Global tax avoidance by multinationals of various countries, especially those in the U.S. and the EU, has become one of the hottest trade issues this year. This is the year that trade policy issues have become once again central to the foreign policy debate. Policy makers in the U.S., EU, the U.K., the OECD, and the G20 have all taken up this issue. We should expect to see significant change in the near future. Of course, this is long-overdue.
Other trade issues are also part of the new and revised trade debate especially concerning imposition of trade duties (A/D and CVD) by the U.S. and the EU on Chinese solar panel exports, negotiation of regional trade agreements (TTP and TTIP), ‘fast track (TPA),’ commercial cyberespionage, and the U.S. – China cross-border auditing agreement.
… Multinational corporations shuffle their profits and often their headquarters around the globe to find low-tax jurisdictions. The U.S. and other countries are now striving for a global solution concerning international taxation. This should include an interim step of better policing of transfer-pricing. “The Corporate Tax Code.” New York Times (May 25, 2013).
… The recent U.S. Senate probe of Apple’s tax policies renewed urgency into global efforts in the U.S. and the EU to crack down of aggressive tax avoidance. Plans for reforms of the global tax rules are being considered by the OECD prior to the forthcoming G20 conference. “Transparency” is a central theme as a weapon against tax avoidance. “Apple Tax Probe in U.S. Spurs Plans for Global Regime.” Financial Times (May 24, 2013).
…There is a political furor in the EU over allegations of tax avoidance by multinationals such as Apple, Starbucks and Google. Tim Cook from Apple and Eric Schmidt from Google defend such actions. “EU to Make Big Companies Set Out Profits and Taxes for Ech Country.” Financial Times (May 24, 2013).
…. The EU has recently called for doing away with bank secrecy, hoping to recoup about $1.5 trillion dollars lost tax each year. “EU Summit Ends Banking Secrecy.” Financial Times (May 24, 2013).
… The U.S. and Switzerland is weighting a tax deal leading to imposition of billions of dollars penalty in resolving bank secrecy and tax avoidance issues of U.S. nationals. “Switzerland Weighs Deal in Tax Cases.” New York Times (May 29, 2013).
… There are growing tensions over the trans-Atlantic negotiation of the TTIP between the U.S. and the EU. Fifty different farm groups within the U.S. have already expressed their concern as well as others on the proposed “cultural exception” that France has demanded for the film and music industries. “Fractures Appear on Trade Pact.” Financial Times (May 24, 2013).
… China solar panel makers are attempting to negotiate agreements with the U.S. and EU to alleviate the imposition of antidumping duties on their sales to those markets. The U.S. law allows such “suspension agreements.” There is also an effort to tie these solar panel negotiations with limiting Chinese telecom imports. (To me this is strikingly similar to the managed trade policies of the 1980’s concerning Japanese steel and auto imports into the U.S. Such actions today are very questionable under the newer WTO rules.) “China Solar Panel Makers Negotiate with the U.S and EU.” Financial Times (May 24, 2013).
… There are proposals in Congress now to authorize U.S. firms to respond to cyber-attacks, to require SEC reporting by firms about cyber-readiness, and companies protection of intellectual property rights (IPR) as a criterion in reviewing foreign takeovers and transactions under CFIUS. “U.S. Urged to Allow Attacks on Hackers.” Financial Times (May 23, 2013).
… The U.S. has recently agreed with China to give the U.S. PCAOB access to the records of Chinese auditing firms (including those of U.S. subsidiaries in China) that audit Chinese firms listed on the U.S. markets. This is a huge development. “U.S. and China Set Auditor Pact.” Wall Street Journal (May 27, 2013).
… U.S. business is eager to promote ‘fast track’ authority. The U.S. Chamber and the Business Round Table are taking the lead in lobbying for this. “U.S. Business Keen to Promote ‘Fast Track’ Trade Deals.” Financial Times (May. 20, 2013).
In summary, it is clear that progress needs to be done on many fronts concerning global taxation and other issues. Global tax avoidance has become big business in the era of globalization, digital communication and multinational business.
There seems to be developing a consensus throughout the trading system that cooperation via international agreements is a viable path. States are becoming more forceful in looking at global transactions. This is no surprise given the great amount of problems that have surfaced over the years in a range of issues concerning taxation, securities, cyberespionage and foreign investment. It’s about time for more meaningful national action to confront these international transactions. In particular, this means the formulation of global rules and greater diplomatic cooperation among countries to confront these many issues.