Tax avoidance: three things G20 governments can do

The ability of multinational companies to shift profits into low-tax jurisdictions is undermining governments’ ability to raise revenue. But the cross-border policy solutions are complex.

John Freebairn

John Freebairn

Curbing international tax avoidance has become a focus of G20 discussion this week, after last week’s revelation that major companies including Ikea, AMP and Pepsi are paying very low tax rates in Australia. But against a background of a growing number of multinational companies with complicated, cross-border supply chains — and competition among nations to attract investment — the policy challenge is significant.

A global problem will require the type of international co-operation offered by groupings like the G20. The way John Freebairn of Melbourne University’s Department of Economics sees it, there are three main options for governments.

“The smartest one,” he explained to The Mandarin, “would be to raise the lower tax rates — if you could bribe low-taxing countries like the Bahamas, the Cayman Islands, Ireland or Luxembourg to move their rates up a bit. High tax rate countries like the United States or Australia might move theirs down a bit, so standardising the tax rates.”

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