G20 to Take Stern Actions against Tax Evasion

The G20 member countries approved of the final report on base erosion and profit shifting (BEPS) countermeasures at their meeting in Antalya, Turkey between Nov. 15 and 16. BEPS can be defined as multinational companies’ tax evasion by means of tax havens or differences between tax laws of countries, and the approval is for the G20 and the OECD to deal with the matter together. Under the circumstances, the introduction of the so-called Google tax is expected to speed up. According to the OECD, the annual tax losses attributable to BEPS are estimated at US$100 billion to US$240 billion, equivalent to 4 to 10 percent of total global corporate taxes.

In Korea, 4,752 out of 9,532 foreign corporations did not pay their corporate taxes in 2013. For example, Google is assumed to record approximately 1.5 trillion won (US$1.3 billion) in annual sales by selling its applications in Korea, but has refused to pay the taxes, mentioning that its servers are located in Ireland. These days, tax evasion by multinational corporations is becoming more and more prevalent, while individual governments have their own limitations in finding out the exact profit structures of such corporations.

The countermeasures of the G20 include 15 specific measures for the prevention of the misuse of tax treaties, exchange of reports between themselves, etc. According to their plan, the obligation of taxation goes to the country paying profits in principle, and is shifted to one where the profits are received in the case of failure, so that non-taxation in both of the countries taking advantage of such legal differences can be forestalled. At the same time, overseas subsidiaries’ reserve incomes are to be subject to taxation, and the benefits of tax treaties are blocked when non-taxation or limited tax rates are abused via bypass investment or the like. In this context, the Korean government will revise its tax treaties from next year. The Income Tax Act and the Corporate Tax Act are expected to be amended in or after 2017, in accordance with follow-up measures of the G20.

The tax authorities of the countries are to be engaged in an automatic exchange of taxation data, too. At present, it is available only by request. The 10 countries including Korea, Britain, Germany, France, Italy, India and Mexico are planning to start the automatic exchange in 2017, before nine countries such as Japan, Australia, Russia and Brazil join in 2018.