APEC Cracks Down on Corporate Tax Loopholes

Ha Noi, Viet Nam, 26 July 2017
  • Issued by APEC Finance Ministers’ Process

Finance officials from APEC member economies are cracking down on rampant avoidance of corporate income taxes across borders, intent on securing critical revenue streams while providing tax systems that are more certain and fair for individuals and small businesses to support growth.

Exploitation of mismatching tax policies between jurisdictions by large global companies, also known as base erosion and profit shifting, results in up to a quarter of a trillion dollars in lost tax revenue worldwide every year. Officials are smoothing out differences in their tax systems to curtail this practice.

“We are working actively in APEC to close corporate income tax loopholes that unfairly transfer the costs to the public and put small firms at a significant competitive disadvantage,” explained Bui Van Nam, Director-General of Viet Nam’s General Department of Taxation, in remarks to APEC officials who met in Ha Noi to take this effort forward. “The stakes are particularly high among developing economies whose capacity for growth depends more on corporate tax revenue.”

“Our focus is on creating a transparent and fair tax environment in the region based on internationally accepted tax principles,” added Dr Vu Nhu Thang, Director-General of the International Cooperation Department of Viet Nam’s Finance Ministry and 2017 Chair of APEC Senior Finance Officials. “We want to make sure that each of our tax authorities have sufficient resources and capacity to implement initiatives for achieving this goal.” 

Eleven APEC economies have already signed a multilateral convention for reviewing thousands of existing bilateral tax treaties and fast-tracking modifications to counter activities like “treaty shopping” and other forms of treaty abuse. To date, 16 APEC economies have also adopted a set of international standards for tracking implementation of anti-tax avoidance measures.

Officials are stepping up technical exchanges to enable more APEC economies to follow suit. This includes guidance on the drafting of tax laws, regulations and penalties for confronting key international taxation challenges—ranging from treaty shopping and pricing of goods and services between parties to excessive interest deductions and harmful tax practices.

“There is a lot that taxation and financial bodies can teach each other about establishing a level playing field for taxpayers,” said Ubaldo Gonzalez de Frutos, senior tax advisor with the Organization for Economic Cooperation and Development, which inducted the multilateral convention on base erosion and profit sharing, and companion standards framework.

“APEC is taking important strides in narrowing policy gaps to ensure the advantages of fair and transparent tax systems are more universally felt across economies,” Gonzalez de Frutos concluded.

Finance Ministers from the APEC member economies will assess the progress of anti-base erosion and profit sharing measures in the region and decide next steps when they convene in in October in Hoi An, Viet Nam.

Representatives from the APEC Business Advisory Council are first meeting this week in Toronto, Canada to formulate recommendations for the region’s Leaders and Ministers on inclusive financial policy development and implementation, among other areas.

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