G20 nations to share tax information on multinationals to beat the cheats

G20 leaders have recommitted to a new standard that would require multinationals to give governments detailed information about their tax affairs.

More than 90 jurisdictions will begin automatic exchange of tax information, using a common reporting standard by 2017 or 2018.

Treasurer Joe Hockey holds up a report with OECD secretary-general Angel Gurria in Cairns.Credit: William West

Australia will have its systems in place by 2018, which will involve banks and other financial institutions setting up systems that will allow it to automatically feed information to government agencies.

Prime Minister Tony Abbott declared the plan would "leave no place for tax cheats to hide".

In a joint statement with Treasurer Joe Hockey, Mr Abbott said leaders had "welcomed" OECD recommendations to restore "fairness, integrity and transparency" to the international tax system, but stopped short of saying there had been agreement on all aspects of the OECD plan.

The OECD, on behalf of G20 governments, is working on the two-year Base Erosion and Profit Shifting Action Plan, with 15 separate parts, to address tax avoidance by multinationals who have for decades been able to channel profits through tax havens such as Bermuda.

The part specifically dealing with how to get more tax out of digital companies such as Apple and Google – by preventing them from claiming they have no physical presence under old tax laws – has not yet been finalised.

The communique said that "profits should be taxed where economic activities deriving the profits are performed and where value is created".

To allow this, the OECD is working to change the definition of "permanent establishment", which in the old rules rested on companies having a physical presence. In the modern digital economy this has allowed companies to avoid tax by claiming most of their activity occurs in low-tax countries such as Ireland and Singapore, when in fact they may have a strong economic presence in Australia.

A change to these rules would require countries to then determine who has taxing rights. As OECD head of tax Pascal Saint-Amans said in an interview with Fairfax Media this week, it may result in countries battling for tax revenue.

Despite this, there has been progress on the common reporting standard, which was initially agreed to at the G20 finance ministers meeting in Cairns last month, and would mean multinationals are required to give each country they operate in detailed information on transactions conducted in that country.

It would "arm tax authorities around the world with the information they need to identify tax cheats and enforce the tax laws," Mr Abbott and Mr Hockey said in the statement.

The OECD has been criticised by groups such as Transparency International for not making the information public. But Mr Saint-Amans told Fairfax Media that the information would not be made public as it was too "commercially sensitive".

This is despite domestic laws in Australia from next year requiring Tax Commissioner Chris Jordan to publish the tax details of Australia's top companies.

The statement from Mr Abbott and Mr Hockey said G20 and OECD members, representing 44 countries and about 90 per cent of the world economy, were committed to the Action Plan reforms to bring international tax rules into the 21st century.

"These reforms will restore the integrity of tax bases and ensure individuals and small businesses do not carry the tax burden unfairly," the statement said.

"They will also ensure countries receive the taxes they are due; revenue which can then be used to provide infrastructure and services to benefit their citizens."

The G20 is also working with developing countries on tax issues. Mr Abbott and Mr Hockey said Australia would do its part by assisting the Philippines to implement the automatic exchange of tax information, which would allow governments to share tax information held by banks and other financial institutions.

The government statement said the OECD estimates that information exchange arrangements have already yielded $53billion dollars of revenue in about 20 OECD and G20 countries through increased voluntary disclosures by taxpayers.

"Collaboration by tax authorities is the key to enforcing compliance and identifying tax risks," the statement said.

The communique also commended the OECD's work in eradicating harmful tax practises, in particular the progress made in relation to patent box regimes.