WASHINGTON/MOSCOW – The Group of 20 finance chiefs pledged Saturday to take necessary steps to boost employment and economic growth as a near-term priority, with recent confusion in the financial markets blurring the outlook for emerging economies.
In a communique released after a two-day meeting in Moscow, the finance ministers and central bank heads from the world’s leading economies also promised to carefully make future changes to unconventional monetary policy.
“The global economy remains too weak and its recovery is still fragile and uneven. Unemployment remains excessively high in many countries,” the communique said. “We agreed that our near-term priority is to boost jobs and growth.”
Ahead of the meeting, the world’s top economic officials were expected to agree on a major push to tighten global tax laws, touching off what could be a sensitive debate as nations vie to protect their favored industries and maintain tax breaks they’ve used to court investment.
In theory, the 40-page work plan expected to be endorsed by the Group of 20 economic powers in Moscow is about shaping the international tax system so it reflects how global companies now operate — and ensures that the Apples and Amazons pay a fairer share of tax in the nations where they do business.
But the more detailed discussion that will follow over the next two years or so, as countries try to develop changes to tax laws and treaties, could take on far more political tones.
The general recommendations developed by the Organization for Economic Cooperation and Development set as a top priority the need to develop clear tax rules for the digital economy — a goal that U.S. officials are concerned could single out leading American companies. While some, such as Apple, have been taken to task at home for sheltering profits overseas, a U.S. Treasury official said there are also legitimate issues that Internet companies face as they try to sort out, for example, how to apportion expenses incurred at development labs in Silicon Valley against revenue earned worldwide.
Likewise, countries that have used tax laws to court investment — such as a recent U.K. tax break extended to earnings from some patents — may fight to hold onto policies they think they need to create jobs.
As the discussion plays out, “nobody wants to be first to become the inhospitable place” where tax rules have been tightened, said a U.S. Treasury official, who was not authorized to speak for the record. “At the same time, they want to be first to say come get a great tax deal.”
As the G-20 finance ministers reviewed the plan, U.S. Treasury Secretary Jack Lew said he regarded the proposal as an important step in allowing national tax systems to capture “stateless income.”
The Moscow session, to be followed by a summit among the heads of state in the fall, was held amid heightened concern that the world economy may be slowing and that a potential shift in U.S. monetary policy could cause problems if it leads to rising interest rates.
The corporate tax issue is sensitive in this era of fiscal austerity and budget cutting in the developed world. At stake are tens of billions of dollars in revenue lost under current rules in which companies lawfully apportion profits, expenses and investments to subsidiaries across complex global supply chains to limit the taxes they pay.
Officials at the OECD, a group of mostly developed nations, say there is momentum to close many of the most commonly used loopholes.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.