The world's top economies agreed on Sunday to develop stricter rules on cross-border taxation to close loopholes that have allowed multinationals such as Starbucks, Google, Apple and Amazon.com to avoid paying taxes.
The Group of 20 endorsed a set of common standards for sharing bank account information across borders with automatic exchange of information among its members to take effect by the end of 2015.
"Some multinational companies aren't paying their fair share of tax anywhere," Australian finance minister Joe Hockey, who hosted the meeting of G20 finance ministers and central bankers in Sydney, said at the close of the gathering. "We want a global response."
Reports of profit shifting by companies away from high tax countries to more relaxed tax regimes have sparked public inquiries in the US and Britain.
Global tax evasion could be costing more than $3 trillion a year according to researchers from Tax Justice Network, while as much as $32 trillion ó twice the size of US gross domestic product ó could be stashed away in tax havens.
Tightening tax loopholes has gained urgency in the aftermath of the global financial crisis when developed nations' efforts to avert economic meltdown left them with gaping budget holes and record debt.
The Organisation for Economic Cooperation and Development has targeted fiscal consolidation as a key part of its growth strategy for the G20, but that will be hard to achieve if tax bases are eroded further.
Corporate tax evasion is also a challenge for poor countries, which typically have the least developed tax systems and enforcement. Around $160 billion each year fail to reach developing nations because of multinationals' tax avoidance, according to a recent report by Christian Aid. That is more than they receive in aid from rich nations.
The push on tax reform at the Sydney G20 meeting was firmly backed by Washington and Australia and the US signed a deal on the eve of the meeting under the US Foreign Account Tax Compliance Act that targets "non-compliant" taxpayers using foreign bank accounts. Tightening the tax rules would prevent so-called Base Erosion and Profit Shifting by multinationals that exploit gaps and mismatches in national tax rules to make profits "disappear" from high tax regimes and shift to low tax locations.
"What we are doing is not to say, well, we need to close down Bermuda," Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, told reporters. "There will be a neutralisation