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TAX & FINANCE: G20 leaders recommit to tax cooperation in context of growth, BEPS, and transparency
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G20 leaders recommit to tax cooperation in context of growth, BEPS, and transparency

By Kelvin Lee, PwC Tianjin


20160729132329140In brief

The 11th G20 Summit was held in Hangzhou, China on 4th-5th September 2016. Under China's presidency, this year, the G20 committed to the theme and vision "Towards an innovative, invigorated, interconnected, and inclusive world economy". Prior to this Summit, the Business 20 (B20)1 submitted the 2016 B20 Policy Recommendations to the Chinese President XI Jinping during the opening of the B20 Summit.


In 2016, the B20's policy recommendations focused on structural measures to promote robust, sustainable, balanced and inclusive growth in the global economy amidst the age of globalisation and regional economic integration. Along this theme, the B20 made a tax policy recommendation to the G20, specifically, using tax as a means to support inclusive growth.


At the conclusion of the G20 Summit, the G20 Leaders' Communique2 was endorsed by G20 leaders, setting out the key consensus and agreed actions from the two-day talks in Hangzhou. In the Communique, the G20 Leaders, among other items, reiterated the importance of international tax cooperation in the context of growth, and also referred back to base erosion profit shifting (BEPS), automatic exchange of financial information, transparency and non-cooperative jurisdictions, as well as capacity building. There was also a reference to China's establishment of an international tax policy research centre for international tax policy design and research, which is being coordinated by China's Ministry of Finance.


Since January 2016, PwC China has supported the B20 discussions and drafted the recommendations in our capacity as the "Financing Growth" taskforce Knowledge Partner. This issue of our Tax News Flash summarises key points from B20's tax policy recommendations to G20 and G20's agreed actions going forward.


In detail
B20 2016 Policy Recommendations to the G20


BT 201611 140 02 Finance G20 2016 leadersThe B20 made 20 principal policy recommendations to the G20 against the theme and vision "Towards an innovative, invigorated, interconnected, and inclusive world economy". The B20 strongly encouraged the G20 to develop more effective and efficient global, economic and financial governance by adopting consistent and aligned tax policies to drive inclusive growth (Recommendation 8 of the 20 principal policy recommendations).


The B20 stressed the importance of tax as a consideration in cross-border transactions, especially with respect to infrastructure and investment. B20 also suggested that G20 members must work together to ensure that "tax systems do not act as unnecessary barriers or inhibitors to growth and thus lead to a misallocation of financing or investment resources". The solution to this was for governments to consider using tax as a "tool to support growth and encourage institutional investment, particularly in relation to long-term infrastructure projects".


Three actions were put forward by the B20 for the G20's consideration:


- Adopting tax policies that support cross-border debt financing and equity investment;
- Ensure that tax policies in the implementation of the BEPS project are consistent and aligned between developed countries and developing countries; and
- Enacting tax policies that benefit both tax authorities and taxpayers because they engender heightened cooperation, coordination and exchange of information among tax authorities


The expected value following such actions would be improving the administration and efficiency of tax systems to encourage and increase cross-border debt financing and equity investment flows. The B20 also called for (1) a commitment from the G20, OECD and G20 governments by the end of December 2016 to undertake further work on how tax systems can be improved to support inclusive growth; and (2) to set up a working group to further explore means by which tax systems can be used to support inclusive growth and develop terms of reference by end of June 2017.


The B20 2016 Policy Recommendations to the G20 and the B20 Financing Growth Taskforce Policy Paper can be downloaded from the link: http://en.b20-china.org/documents/report


G20 Leaders' Communique, Hangzhou Summit

BT 201611 140 01 Finance G20 2016 leadersFollowing the G20 Summit in Hangzhou on 4th-5th September 2016, a Communique was endorsed by the G20 leaders setting out key discussion points and agreed actions. Other than reiterating tax cooperation in the context of growth, the G20 also referred back to BEPS automatic exchange of financial information, transparency and non-cooperative jurisdictions and capacity building.


In particular, the G20 addressed the B20's tax policy recommendations and emphasised the "effectiveness of tax policy tools in supply-side structural reform for promoting innovation-driven, inclusive growth, as well as the benefits of tax certainty to promote investment and trade". Interestingly, in this respect, China was reported as having established a tax policy research centre for international tax policy design and research, an initiative to be coordinated by the Ministry of Finance.


The takeaway

As one of B20's Knowledge Partners supporting one of the five task forces ("Financing Growth") for B20 2016, PwC China conducted research and analysis, facilitated discussions and drafted policy recommendations, including tax policy recommendations for the Financing Growth task force. The B20's tax policy recommendations to the G20 considered and raised many issues and considerations following the BEPS final reports such as concerns over potential inconsistency and alignment in domestic tax policies, increased compliance on taxpayers and how the increased cooperation, coordination and exchange of information between tax authorities should lead to benefits for taxpayers and tax authorities alike.


It will be interesting to see what further actions the G20, OECD and G20 governments may take in the coming year and how China's Ministry of Finance will establish and run the tax policy research centre for international tax policy design and research.


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