Since its inception, the G20 has played a central part in structuring international corporate taxation – a role it must uphold in light of the COVID-19 pandemic, which demands strengthened cooperation among members
Since their inaugural Washington Summit in 2008, G20 members have played a pivotal role in reforming the architecture of international corporate taxation. To address tax evasion and avoidance, leaders at the Los Cabos Summit in 2012 tasked the Organisation for Economic Co-operation and Development with developing and implementing a new taxation regime known as the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). It now has 137 member countries, representing more than 95% of global gross domestic product. In light of the renewed spotlight on global tax reform at the Buenos Aires Summit in 2018, the 2020 Saudi G20 presidency has pledged to find a consensus-based solution to address the tax challenges arising from the digitalisation of the economy.
Although international taxation has been a consistent feature in G20 deliberations since the Washington Summit, its proportional weight of communiqué conclusions at each summit has been inconsistent. G20 leaders have dedicated a total of 13,146 words to international tax in their summit outcome documents, which represents approximately 7% of their total number of words. Between the 2008 Washington Summit and the 2015 Antalya Summit, the portion of words per summit ranged from 1% to 5%. A new trend emerged with 19% at Hangzhou in 2016, followed by 14% at Hamburg in 2017 and 17% at Buenos Aires in 2018. At Osaka in 2019, it dropped back to the level of previous years at 3%.
These conclusions contained 131 collective, politically binding, future-oriented commitments, or approximately 5% of the total commitments on all subjects the summits made. International tax commitments averaged about eight for each summit since 2008. They ranged from a low of one (1% of the total) in Toronto to a high of 25 (9%) at St Petersburg in 2013.
Of these 131 tax commitments, 31 have been assessed by the G20 Research Group for compliance. Compliance averaged 79%, above the all-subject average of 71%. Although average compliance was strong, levels of compliance varied. Compliance was highest at 98% following the Toronto Summit in 2010, where leaders committed to designing and implementing a structure for resolving financial crises without burdening taxpayers. The next highest was from Hamburg in 2017 with 97%, followed by Antalya in 2015 with 92%. The lowest compliance was 53% from the 2009 London Summit, where leaders pledged to take countermeasures against non-cooperative tax jurisdictions. Also low was Cannes in 2011 with 54%. In
the middle was St Petersburg in 2013 with 71%.
Causes of Compliance
What causes this compliance? This analysis considered several ‘catalysts’ that are embedded in the text of commitments that can improve or hinder compliance outcomes. Multiple regression analyses were used to estimate the impact of the 17 catalysts on compliance. It found two significant ones. First, the strength of the language used in a commitment lowered compliance by 15%, implying that G20 members tend to comply less with commitments that are more forcefully expressed, such as commitments to take action against non-cooperative jurisdictions. Second, reference to an international organisation other than the OECD reduced compliance by 35%, which implies that delegating commitments to other institutions may result in relatively poor performance.
At the Riyadh Summit in 2020, G20 governments should forge a consensus on BEPS 2.0, which refers to the OECD’s new project to address the challenges of digitalisation. Following a public consultation process in May 2019, the OECD released a two-pillar framework for achieving a consensus-based solution to the challenges of digitalisation: first, take a coordinated approach to reallocating taxing rights and, second, set new rules to govern the allocation of a minimum global tax. The G20 subsequently endorsed the framework. However, although international corporate taxation has been a focus of global diplomacy at the G20 and average compliance with its related commitments is strong at 79%, public correspondence between France, Italy, Spain, the United Kingdom and the United States since 2019 highlights significant differences between major stakeholders in the process. Given the current financial crisis and the fiscal reckoning prompted by the COVID-19 pandemic, strengthened cooperation and a new consensus on BEPS 2.0 are urgently needed to close loopholes in the international tax system.