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Japan, Europe, U.S. target multinationals that avoid taxes

Kyodo

Japan, the United States and Europe, all of which are experiencing deteriorating fiscal health, are moving to ensure that multinational firms pay their fair share in taxes, sources said.

Leaders of the Group of Eight major nations are expected to adopt a statement at their summit in Northern Ireland in mid-June showing their support for the establishment of global tax rules, the sources said.

At its two-day ministerial meeting through Thursday, a panel of the Organization for Economic Cooperation and Development plans to look into ways to discourage multinational companies from using tax havens and limit their ability to avoid paying taxes, they said.

One ploy multinationals use to avoid paying taxes entails setting up a subsidiary in a country where the tax burden is low. A sub-subsidiary operating in a country where the tax burden is heavy pays a royalty to the subsidiary to reduce its recorded profit in an attempt to lower the amount of payable taxes.

According to media reports, Seattle-based Starbucks Corp. has apparently been reducing tax payments to Britain, where the burden is high, by buying coffee beans from a subsidiary in Switzerland at higher prices than usual.

The revelation led to protests by consumers, prompting the British government to look at strengthening its tax-payment enforcement.

The OECD tax panel plans to draw up an action plan at the end of June to address moves by multinationals to avoid paying taxes, the sources said, adding the matter is likely to be discussed at a meeting of the Group of 20 finance chiefs in July, attended by major emerging economies.