THE BLOG

This Tax Cheat Is Over

07/19/2013 12:14 EDT | Updated 09/18/2013 05:12 EDT
Shutterstock
paradise island resort

Tax arbitrage, or moving operations and tax liabilities to low-cost jurisdictions, has been a game played by rich people and multinationals for years.

But the game is ending finally. This will have implications in terms of government revenues to pay for social services but will also have a negative impact on the profits and share prices of giants such as Google, Amazon and virtually every multinational that's a household name.

Today, the G20 in Moscow approved a strategy, commissioned on their behalf and prepared by the Organization of Economic Co-operation and Development, that will crack down on tax avoidance and secrecy globally.

Here are the important points, outlined by the Guardian, in the manifesto to clean up global taxation. Each point provides glimpse into the games that have been played, costing rich and poor nations tens of billions in tax revenues.

-- Companies like Amazon, with extensive warehouse operations abroad, will have to pay local taxes on any profits arising from sales in that country. (Now profits are "booked" in a low or no tax jurisdiction.)

-- Multinationals must disclose their financial information -- profits, sales, taxes, payroll -- to every tax department they operate in, broken down by country.

-- Placing patents or other intellectual property rights in no-tax havens to avoid taxation won't be allowed.

-- A new standard for appropriate taxation of foreign countries will be established to shut down tax and secrecy havens.

-- Review of tax treaties to plug loopholes

-- More disclosure to local governments about how they fit into multinational international tax schemes

-- Creation of an agency to monitor and quantify the tax losses to nations by multinational tax schemes playing arbitrate and loophole games.

The OECD has been trying to crack down on tax havens for years without much success. But the high debt and demographic aging in developed nations since the financial meltdown has forced governments to go after their own multinationals and foreign ones operating in their midst.

This could be a transformation if undertaken and the G20's endorsement represents an enormous, overdue move in the right direction.

Hopefully, the United States and Canada will also crack down on the practices of their own citizens and multinationals. The use of the Cayman Islands, and other havens, to avoid taxes is commonplace among Americans, including former President candidate Mitt Romney.

And Canada, like Europe, allows rich citizens to leave with their loot and never pay taxes again -- a gigantic loophole that has cost these countries trillions. Canadians invented numbered companies and tax havens such as Lyford Cay and thousands live outside the country, as do many Europeans, never paying taxes anywhere on investments they made back in their home nations.

It's immoral and now, hopefully, it all will become illegal.

Top Offshore Tax Havens For Canadians