The G20 group of the world's top economies expressed determination Saturday to crack down on companies who duck their full taxation responsibilities with elaborate schemes.
The call came after the finance ministers of France, Britain and Germany said it was time for coordinated action to halt the practice of shifting profits from a firm's home country to pay less tax under another jurisdiction.
Cash-strapped governments are seeking to use every means to inject new funds into their budgets and have run out of patience with big firms shifting profits to be registered in tax havens like the British Virgin Islands and Bermuda.
"We are determined to develop measures to address base erosion and profit shifting" the G20 said in a communique after a two-day meeting of finance ministers and central bankers in Moscow.
They vowed to "take the necessary collective action" and awaited an action plan which is set to be put forward later this year by the Organisation for Cooperation and Economic Development (OECD).
Online retailer Amazon, Internet giant Google as well as coffee shop chain Starbucks have been under the spotlight for their tax strategies in Britain and other EU countries in recent months.
Starbucks came under particular pressure in Britain following the revelation last year that it has paid just £8.6 million ($13.8 million) in British corporation tax since 1998, despite generating £3 billion in revenues.
It has now pledged to voluntarily pay back millions in extra tax.
"We are talking about something that is fundamentally legal. We need to modify the law," admitted the OECD secretary general Angel Gurria. "Avoiding double taxation has become a way of having double non-taxation."
In a rare joint news conference, the finance ministers France's Pierre Moscovici, Britain's George Osborne,and Germany's Wolfgang Schaeuble said while such tax avoidance was still technically legal, laws needed to be changed in a broad global effort.
Schaeuble said it was "unfair that multinational companies should be able to use globalisation as a tool" not to pay their fair share of taxes while Moscovici described the issue as a "matter of fairness for our citizens".
Osborne said that current global tax rules had been developed almost 100 years ago — along principles set out by the League of Nations in the 1920s – and few changes had been made since.
"We want businesses to pay the taxes that we set in our countries. And this cannot be achieved by one country alone. No one country can create an international tax system by itself."
The ministers emphasised that their proposal was supported by the Russian presidency of the G20.
A person familiar with the OECD's report said it was essential to move rapidly, especially with the United States apparently not sharing Europe's wholehearted enthusiasm for the anti-tax avoidance drive.
"The timetable is going to be very tight — otherwise the (OECD) report will be buried," the person said.
According to the OECD, some multinational companies use avoidance strategies that allow them to pay just five percent in corporate taxes while smaller businesses are paying 30 percent.
It says that practices have become more aggressive in the past decade, with some multinationals creating offshore subsidiaries or shell companies and taking advantage of the tax breaks offered in the countries where these are registered.
This has led to absurdities like the tax havens of Barbados, Bermuda and the British Virgin Islands in 2010 together receiving together more foreign direct investment than either Germany or Japan, the OECD said.
In 2010, the creation of offshores meant the British Virgin Islands was the second largest investor in China, it noted.