MOSCOW (REUTERS) - The Group of 20 leading nations (G-20) backed a"fundamental" rethink of the rules on taxing multinational corporations on Friday, taking aim at loopholes used by companies such as Apple and Google to avoid billions of dollars in taxes.
The group of leading economies released an action plan drawn up by the Organisation for Economic Cooperation and Development (OECD) that said the existing system did not work, especially when it came to taxing companies that trade online.
"It is a major breathrough and is at the heart of the social contract," France's Finance Minister Pierre Moscovici told a news conference on the sidelines of a meeting of finance ministers from the G-20 in Moscow.
"People and companies have to pay the taxes that are due. It's the only way to operate in a fair and competitive society," added British Finance Minister George Osborne.
Large budget deficits and public anger at inter-company structures designed to channel profits into tax havens have prodded governments to act. Google, Apple and others say they follow the law wherever they operate and pay what tax is due, while tax specialists point out that companies have a duty to shareholders to organise their affairs in a tax-efficient way within the laws set by politicians.
Mr Pascal Saint-Amans, director of the OECD's Centre for Tax Policy, said governments' frustration with companies' aggressive tax avoidance had created a "once in a century" opportunity to overhaul the rules, which date back to the League of Nations in the 1930s.
Currently, tax systems respect inter-company contracts even if they evidently seek to shift profits out of countries where they are earned into low or no-tax jurisdictions. New rules will seek to put more emphasis on economic substance, the Paris-based think tank said.
"We clearly have reached the point where the governments don't care any more about taboos, and they just say we cannot be bound by pure contractual arrangements. It's not possible to only allocate the profit through only contractual arrangements," Mr Saint-Amans told reporters.
The OECD, which advises its mainly rich members on tax and economic policy, has two years to come up with specific measures that can be adopted internationally.