Creating a fair international tax system
G20 Summit

Creating a fair international tax system

G20 presidencies regularly contribute to milestone transformations that make the international tax system fairer – and Japan’s presidency is no exception. Masatsugu Asakawa, vice minister of finance for international affairs at the Ministry of Finance, draws on his wide experience to chart the country’s past, present and future efforts to modernise the international tax system


Past and present…

International tax cooperation has been a success story of multilateralism facilitated by the G20, thanks to the Base Erosion and Profit Shifting project and the exchange of tax information.

The G20 and Organisation for Economic Co-operation and Development jointly started a journey to tackle tax avoidance in 2012 with the BEPS project, which has three unique characteristics: a focus on double non-taxation, inclusiveness and political support.

First, BEPS intended to achieve a level playing field by adopting a holistic approach to demand a fair tax burden from multinational enterprises regardless of their tax structures, as opposed to the past focus on eliminating double taxation. Second, although in the past international tax policy reforms were initiated chiefly by advanced economies, at its initial stage BEPS was joined by the members of the G20 that are not members of the OECD.

Finally, BEPS has enjoyed political support. For example, its action plan and final reports were endorsed at the 2013 St Petersburg and 2015 Antalya G20 leaders’ meetings, respectively; at Hangzhou in 2016 the leaders welcomed the establishment of the Inclusive Framework on BEPS, which is mandated to monitor the implementation of the BEPS agreement. The Inclusive Framework started with 82 jurisdictions and currently has around 130 jurisdictions, including more than 70% of non-OECD/G20 jurisdictions from all geographic regions.

…And future: tax and digitalisation

Although the BEPS project is a big success, challenges remain in making a fair international tax system. Innovation in information and communication technologies has brought significant changes in ways of doing business, most notably, digitalisation. BEPS has addressed the tax challenges arising from the digitalisation of the economy, but, due to its transformative nature, no consensus emerged in 2015.

Discussions have continued under the Inclusive Framework, with an interim report submitted to the G20 last year. That report identified a cross-jurisdictional scale without mass reliance upon intangible assets, and data and user participation as common characteristics of digitalised business models. These factors have made it much easier to conduct business without a physical presence in a market jurisdiction, on which the current taxation rule relies heavily. In some cases, the tax outcome can be quite unfair.

Against this backdrop, G20 leaders agreed at Buenos Aires in December 2018 to work together to seek a consensus-based solution to the tax challenges of digitalisation, with an update in 2019 and a final report by 2020. To meet this target, several important steps have been taken under the Inclusive Framework on BEPS in 2019, including holding public consultations and developing a work programme.

The work programme adopts a two-pillar approach to examine the allocation of taxing rights and broader BEPS issues in parallel, without prejudice. The first pillar has three proposals, all of which aim to allocate more taxing rights to market jurisdictions. As the three differ in reasoning, we need to work hard on how to reconcile them. As for the second pillar, the Inclusive Framework has been addressing possible ways to provide residence and source countries where profits are derived with a right to tax back those profits subject to no or low rates of taxation. This would contribute to addressing a race to the bottom that would have adverse consequences for all countries, large and small, developed and developing.


The Inclusive Framework on BEPS has been working to reach a consensus-based solution on both pillars. As the 2020 deadline is fast approaching, political engagement and strong leadership of the G20 are essential. As G20 chair this year, Japan intends to make every effort to make a fair international tax system.


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