The ECOFIN – which is made up of EU finance and budget ministers – meets monthly and discusses many issues. This month’s meeting focussed largely on tax issues, partly spurred on by the upcoming G8 meeting, which also promises to put tax issues centre stage. The list of items covered at the meeting were impressive – savings tax reform, and a host of issues relating to tax evasion and tax fraud – but the outcomes were minimal.

Tax evasion and tax fraud

The formal agreement of the meeting – or ‘Council Conclusions’ – recognises that transparency measures today are not sufficient to be effective against tax evasion and tax fraud. The ministers highlight that “it is necessary to encourage Member States to take all necessary steps to tackle aggressive tax planning, where appropriate, which would help diminish existing distortions”.

One easy first step for EU leaders would be to end secrecy around who owns companies, trusts and other corporate vehicles.

Although the ministers support “improving the implementation and enforcement of standards of beneficial ownership information that is relevant for tax purposes”, they fail to mention the golden opportunity they have this year to make concrete progress. This year the EU is revising its Anti-Money Laundering Directive, which provides the perfect opportunity to put the real – or ‘beneficial’ – owners of companies, trusts and foundations on public record.

Today, tax evaders and other criminals can hide their identity behind a company or another legal entity, and they can easily use bank accounts to transfer their untaxed and illegally gained money. The EU can end this by requesting real owners to identify themselves and recording them in a public register.

EU finance ministers highlight the importance of “automatic exchange of information” on tax, and they note that the EU has a key role to play in “supporting and promoting the acceptance of such standards globally”, which is welcome. However, one of the few concrete actions mentioned in the Council Conclusions is that the “Presidency intends to write to the International Consortium of Investigative Journalists asking them to supply Member States through the relevant competent authorities with the names and details regarding all EU citizens on the ‘offshore leaks’ list”.

Surely the EU can think of more effective means of making sure that information is available? For instance, they welcome that automatic exchange of tax information is again on the table after five EU Member States agreed on an initiative for multilateral and automatic information exchange, also called the EU FATCA – named after the US Foreign Account Tax Compliance Act. This would be a significant first step towards increased transparency and would ease tax collectors’ jobs in the countries in question. However, while the ECOFIN recognised the global scale of tax secrecy, proposals for information exchange are so far exclusively for EU Member States and other countries from the global north. Developing countries risk being excluded. When EU leaders meet next week they should recognise the need for true multilateralism in tax matters. This is not the moment to make half-hearted reforms that only benefit the minority; the EU must throw its weight behind a multilateral solution.

Savings taxes – more delay and developing countries left out

Top of the news agenda was the much-delayed EU Savings Tax Directive. Hopes had been high that opposition in Austria and Luxembourg would be overcome. As Richard Murphy of the Tax Justice Network has said, the proposed directive “would represent very real progress in the fight against tax haven abuse because this demands real transparency on trusts and companies as well as on individuals”.  However, in the end, the ministers agreed to “revert to the matter at a forthcoming meeting”, heralding further delays.

In a comment about the disappointing outcome, Murphy said, “In the meantime the criminals are in charge in Austria and Luxembourg, and it’s right to name them as such”. Members of the European Parliament (MEP) were also disappointed about the further delay. Sven Giegold, spokesperson for economic and finance issues for the Green Group of MEPs, said:

“The shameless obstructionism by Luxembourg and Austria, which [is] continuing to block efforts to ensure proper transparency of bank accounts as part of EU action against tax avoidance, must be overcome. I call upon the heads of states to do so during their summit next week. If these two member states refuse to get out of the way of efforts to tackle tax avoidance in Europe, they must be bypassed.”

Don’t miss another opportunity: country-by-country reporting

Another step towards ending financial secrecy would be to implement country-by-country reporting of companies’ profits, sales, staffing levels, assets and tax payments. This will be a requirement for the banking sector and should be extended to all sectors. While EU Member States failed to use the Accounting Directive to take this step, the European Parliament has been more progressive. French President François Hollande has also said, “I am in favour of country-by-country accounting disclosure by quoted companies in France, whatever their sector of activity and not only in [the] extractive sector”. The Norwegian government is also supportive of the measure and recently launched a working paper suggesting full country-by-country reporting for the extractive and logging industries.

Taking these two steps towards ending corporate secrecy would not only help to curb tax evasion in the EU. These two simple measures would also help developing countries to keep and tax the billions of dollars that are being illicitly transferred from their coffers every year.

Defining tax havens?

In December 2012, the European Commission published an Action Plan to strengthen the fight against tax fraud and tax evasion (see Eurodad’s analysis). The Action Plan recommends that the EU should develop a set of criteria that would help produce a ‘black list’ of tax havens, or – in EU language – “to encourage third countries to apply minimum standards of good governance in tax matters”.

While France has expressed support for developing EU criteria and a blacklist of “non-cooperative jurisdictions”, this is a sensitive area because explicit criteria would also shed light on EU Member States with harmful tax practices, although the blacklist would only apply to non-EU countries. In a letter to the President of the European Council, Herman Van Rompuy Eurodad, Oxfam and 26 other NGOs encourage the EU to agree on a common binding definition of tax havens and effective non-compliance sanctions. “Unlike previous failed attempts, these criteria must be binding and comprehensive, combining as a minimum, features of secrecy of banks and legal entities, non-cooperation and harmful tax measures,” the letter states.

EU finance ministers this week decided to postpone the discussion and “invite consideration of whether developing a European list of third country non-cooperative jurisdictions is appropriate”. They also referred to ongoing work at the Organisation for Economic Co-operation and Development (OECD). While this keeps the item on the table, the link to the OECD is worrying because the OECD’s process of identifying tax havens has so far produced few results. While the indicators are going in the right direction, the OECD’s blacklist so far suggests there are no tax havens in the world.

So while it is positive that EU finance ministers are recognising the urgency of cracking down on tax havens and harmful tax practices by companies and governments, we need real political action to stop tax evasion. We need politicians to change laws, and to sanction misbehaviour. When meeting in Brussels next week, EU heads of states should therefore take the challenge from the 28 non-governmental organisations and agree on concrete measures including:
-          multilateral automatic information exchange;
-          disclosure of beneficial owners through public registries;
-          country-by-country reporting for transnational corporations in all sectors;
-          and a common binding definition of tax havens and effective non-compliance sanctions.

See more on what the EU should do to respond to tax scandals.

Public-Private Partnerships (PPPs) are high on the development agenda and they are increasingly being promoted as a way of closing the infrastructure financing gap in developed and developing countries alike. Given the complexity of the issues and risks involved, any decision to promote the use of PPPs in developing countries further should be based on a thorough assessment of these mechanisms, and on the lessons learned from past experience.

PPPs moving up the development agenda

In the current financial context, the central role of the private sector in development is being mainstreamed in policy discourse, and donor governments are increasingly turning to PPPs to deliver public infrastructure and public services. According to the International Institute for Sustainable Development, the “rise to power of PPPs” is “likely to continue following the 2007–2008 global financial crisis that sees many jurisdictions strapped for cash and seeking alternative methods of meeting the increasing demands for investment in public sector development”.

This is happening in various policy forums, as shown by the EU project bonds, the World Bank’s call to increase support to the private sector for growth highlighted by Eurodad’s analysis, as well as the private sector and infrastructure development focus of the new African Development Bank Strategy. As a recent paper by the Catholic Agency for Overseas Development (CAFOD) shows, this is likely to affect developing countries too, as European governments are more and more interested in using PPPs as a way of delivering development assistance, not only due to fiscal constraints but also because of the business opportunities they represent for European companies.

The G20 has been promoting the PPP approach in its different initiatives and work streams, including the Development Working Group. Just one example of this is the report of the High-Level Panel (HLP) on Infrastructure, appointed by the G20, which promotes mechanisms for scaling up PPPs globally.

Additionally, at the recent Spring Meetings in Washington, the G2O’s Russian Presidency underscored “the importance of long-term financing for investment, including in infrastructure, in enhancing economic growth and job creation”. A Study Group on financing for investment – chaired by Germany and Indonesia – was created last February (see Eurodad’s article) in order to specify how to reach these objectives. This group will discuss strengthening public policy and improving PPPs, among other issues, with a workplan that will be agreed at the upcoming G20 Summit in September.

At the March 2013 G20 Sherpa meeting, the Russian Sherpa stated: “we are considering the possibility of modifying mandates of national and international development banks, with the goal of focusing the institutions for development on promoting investment, primarily in infrastructure, and supporting public-private partnerships (PPPs) in this area“.  This might have consequences for key sectors such as energy, water and agriculture.

Key concerns to address before scaling-up PPPs in developing countries

Any decision to promote PPPs further in developing countries should draw the lessons from past experiences to ensure that PPPs are a productive and complementary development agent. What past experience has shown is that PPPs are complex and varied mechanisms that have brought mixed results.

The Eurodad briefing PPPs: Fit for development? highlights several problematic issues, including:

• The capacity of PPPs to deliver positive development outcomes cannot be assumed.
• PPPs tend to benefit private firms that already have sufficient access to finance at the expense of domestic micro, small and medium-sized enterprises.
• Risks are often disproportionally carried by the public sector.
• There are no prior poverty and social impact assessments in PPP projects and no systematic data on PPP projects’ outcomes.

Similarly, there are enough reasons for not exporting PPPs as a mechanism to deliver aid to developing countries, as shown in two papers on the issue, one by Nancy Alexander from the Heinrich Böell Foundation and the most recent one from CAFOD. Both papers raise red flags pointing out some additional and complementary concerns:

Alexander’s paper stresses that:

• PPPs cannot function effectively without an adequate regulatory framework.
• There has been a lack of contract transparency.
• There have been problems with methodologies for assessing PPPs.
• Local knowledge and ownership are key ingredients of PPP models and implementation. 
• There is a need for a clear and transparent regulatory framework to prevent corruption.

 CAFOD’s paper highlights that:

• PPPs are more costly than conventional procurement.
• PPP projects usually do not require the prior consent of populations.
• Government officials in developing countries lack the skills and resources to negotiate beneficial PPP deals.

The Organisation for Economic Co-operation and Development (OECD) guidelines on the governance of PPPs, which were adopted in May 2012, are a further illustration of the complexity of PPPs and some of the issues that should be addressed. In OECD terms, these recommendations to OECD governments are “appropriate steps to ensure that PPPs are affordable, represent value for money and are transparently treated in the budget process”.

These recommendations include:

• Assessing whether PPP projects are actually better at delivering value for money compared to other procurement methods.
• Conducting a cost-benefit analysis of the PPP project to ensure coherence of the project with overall government policies and objectives.
• Having the necessary skills to write and negotiate PPP contracts.
• Clearly defining and measuring the risks associated with the PPP project.
• Involving end-users in defining and monitoring the project and encouraging the active participation of all stakeholders.
• Ensuring budget transparency.
• Ensuring a competitive tender process, allowing the participation of domestic firms.  

As the G20 and other development actors are becoming increasingly engaged in this agenda, it is essential to consider these concerns and draw lessons from past experience in order to ensure that PPPs contribute effectively to development.

While Europe struggles financially and its citizens suffer from severe budget cuts, EU Member States are losing around €1 trillion annually to tax evasion and avoidance. Tax evasion and avoidance by multinational companies is also hampering development in the global south. Illicit financial flows from developing countries exceed the amount of development aid received many times over. The Tax Justice Network estimates that since the 1970s, the world’s richest had accumulated US$7.3-$9.3 trillion of unrecorded wealth in tax havens in 2010 and that $21-$32 trillion of unrecorded offshore wealth was channelled through tax havens in the same period.

The review of the EU Anti-Money Laundering Directive (AMLD) presents a golden opportunity to close regulatory loopholes and to put an end to the corporate secrecy that is necessary to dodge tax payments and to hide the money from tax evasion, as well as funds from drugs and arms trafficking and corruption. Here is some more information, put together by Eurodad:

• Revision of the EU Anti-Money Laundering Directive – How we can end damaging corporate ownership secrecy. This two-page note summarises why the EU should establish public government registries of the real beneficial owners of companies, trusts and other corporate structures.

•  A golden opportunity to tackle tax dodging and illicit capital flight: the review of the EU Anti-Money Laundering Directive. This two-page note details how the review of the AMLD can be used to curb illicit financial flows.

•  Offshore leaks: How EU policy-makers should use the AMLD to respond to tax scandals. The offshore leaks and the ensuing media debates set out why we need transparency and new regulations to put an end to tax dodging by the wealthy. This one-page note sets out how it should be done.

 For further analysis, see Eurodad’s report Secret structure, hidden crimes.

By María José Romero, Eurodad and Gustavo Hernández, Alop

An April seminar on the “Evaluation of the European Union’s support to private sector development in third countries” showed that much more needs to be done to maximise the impact of EU money on the ground, since linkages between EU support to private sector development and poverty reduction and job creation remain very distant.  

On 22 April, the European Commission (EC) presented an evaluation report on its support to private sector development in third countries, with the objective of identifying key lessons. The aim is to improve current and future strategies and programmes. The evaluation includes a survey with representatives of EU delegations and country visits, and covers all the support given during the 2004-2010 period in all regions where the EU provided direct funds, which amounted to €2.4 billion. Most of the funding was focused on the areas of facilitation of investment and access to finance (23%); sector budget support (20%); and investment and inter-enterprise cooperation (19%). In contrast, there was minimal support for micro-enterprises (2%).

The seminar devoted most attention to the key issue of the EC’s value added at the time of providing support to private sector development in third countries. On this point, the evaluation report mentions that “different types of value added by the Commission’s support were observed. They related to its financial weight, its trade mandate, its capacity to transfer EU good practices, its capacity to use a variety of support mechanisms and modalities, its continued presence and focus on poverty reduction, and the fact that it was perceived as less tied to specific economic or political interests. It cannot however be stated that any of these factors really stood out.” 

Furthermore, the evaluation report indicates that “Commission representatives did not have a clear and shared conception of what the Commission’s value added was or should have been with respect to PSD [private sector development] support.” The report covers neither the resources channelled through the EU blending facilities nor the African, Caribbean and Pacific countries Investment Facility managed by the European Investment Bank (EIB) to support private sector development. However, its findings are similar to concerns raised during the public seminar organised at the European Parliament on 21 March, which specifically addressed the blending mechanisms and the EU Latin American Investment Facility (LAIF). The civil society organisation (CSO) report on the LAIF concludes that “no direct link has been observed between the LAIF and the reduction of poverty and inequality. Indeed, the vast majority of projects do not include poverty reduction, inequality and exclusion (social cohesion) among their objectives”.

The evaluation report further states that, even if there is a broad consensus on the importance of the private sector for job creation, “linkages between the EU support for PSD and employment generation remained very distant and that the EU did not really use its support for PSD as an opportunity to promote crosscutting issues and the Decent Work Agenda”. CSO findings presented at the European Parliament, based on an in-depth analysis of four case studies, highlights that one out of four projects “has the potential to have positive impacts if the expected results are achieved. However, the lack of available information did not allow for a rigorous analysis and leads to a series of questions regarding the mechanisms and procedures for participation, monitoring and selection, and the prioritisation of energy efficiency over other financing needs of the SMEs [small and medium-sized enterprises].”

At the seminar, CSOs argued that – in times of scarce public resources – the EC should address these concerns by revisiting its support to PSD in order to ensure positive impacts on poverty eradication and job creation.

The Spring Meetings of the International Monetary Fund (IMF) and the World Bank just ended in Washington DC and brought little promise of sunny days ahead for development. The different Communiqués released during the meetings contain more lip service than practical commitments, and non-binding visions where in fact immediate actions are needed. The IMF governance reform remains stalled; the World Bank’s new development targets ignore inequality; leveraging private finance remains the makeshift solution as public development finance is scarce in times of austerity; and, while the Spring Meetings signified a rhetorical shift away from the austerity dogma, there are few means to implement that shift.  

IMF – all talk and no substance

Just a few days before the Spring Meetings started, the IMF’s new World Economic Outlook revised the Eurozone’s growth projections downward once again, and with them global growth projections. This implicitly acknowledges that the IMF’s policy advice back in 2010 – to move from fiscal expansion to austerity policies – was premature and inadequate. The Eurozone economy double-dipped rather than recovering, with negative spill-over effects for Europe’s trading partners, including in the South.

Statements by IMF’s Managing Director Christine Lagarde and IMF staff at the Spring Meetings encouraged those countries that can afford it to move back to less contractionary fiscal policies in order to stimulate growth. However, the diplomatic language in the International Monetary and Financial Committee’s (IMFC) Communiqué that “surplus economies must boost domestic sources of growth” indicates that they have limited willingness to comply. Furthermore, the IMF has no means besides rhetoric to pressure surplus economies that are not dependent on its loans. For the crisis countries, austerity remains the medicine of choice: “deficit countries must continue to raise national saving”, which implies a further reduction in consumption and investment.

The agreement on governance reforms contains no news. The implementation of the already agreed quota reform is stuck as it awaits approval by the US Congress. The upcoming quota formula reform is supposed to strengthen the ‘dynamic economies’, which means that the IMF will continue to be dominated by rich countries and marginalise the poor. Only the composition of these country groupings might change.   

On a more positive note, the current anti-tax evasion wave has also reached the international finance institutions (IFIs) as the IMFC acknowledges that “fighting tax evasion is critical”. However, the policy advice that follows is limited to “promote transparency in the tax, anti-money laundering and counter-financing of terrorism areas”. This is insufficient, as the IMFC is still ignoring the need for progressive taxation or shutting down tax havens in order to fight poverty and drive equitable growth. The temporary extension of the zero interest rate for the IMF’s facilities for low-income countries that has been ‘noted’ by the IMFC will not fill the gap.

World Bank – full of empty promises

This situation was obviously a challenging starting point for the World Bank section of the Spring Meetings, presented under a huge ‘end poverty’  logo hanging from their headquarter’s façade. The World Bank launched its new development goals – partly pre-empting the outcome of the UN’s ongoing post-2015 process (i.e. the new commitment to reduce the share of people living in absolute poverty to 3% of the world’s population by 2030, and to increase the incomes of the bottom 40%).

However, there is no reference to reducing relative poverty, which is as culpable in promoting human misery as absolute poverty. Without support for redistributive mechanisms such as progressive taxation systems, or support for public financial management to implement such taxation schemes, there is no guarantee that this approach will address issues of inequality. Civil society groups in Washington DC argued that the new goals would benefit greatly from a clear understanding and “concrete action” on shared prosperity and reducing inequality.  

The Communiqué of the World Bank development committee addressed the challenges presented by macro-economic instability, unemployment and food price volatility. Furthermore, it lauded World Bank President Jim Yong Kim’s vision paper for the future of the organisation and the focus on shared prosperity.  Unfortunately, however, there were no clear solutions given to the challenges – and the principles put forward by the vision paper on shared prosperity are mired in compromise and ambiguity.

On unemployment, the World Bank lionised the private sector’s contribution to growth and job creation. The Communiqué argued that “with a proper enabling environment, adequate infrastructure, and policies that promote competition, entrepreneurship and job creation, the private sector can support shared prosperity and offer real opportunities to all citizens”. It called upon its private sector arms, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), to increase their support to the private sector to achieve the objectives of inclusive growth. There was no clarity on whether funding would be scaled up to support an appropriate regulatory framework to protect workers’ rights, or to ensure that financing goes to appropriate private sector partners that can deliver on development objectives.

There seems to be a suggestion that all private actors are equal, paying no regard to the current period of jobless growth or the complicit role that many in the private sector have played in tax avoidance, effectively reducing the ability of developing countries to collect revenues that could finance many of their social and infrastructure needs. Furthermore, a recent audit of the IFC’s use of financial intermediaries by their ombudsmen determined that many of these private sector investments yielded questionable development results.

There is also no recognition that, without public guidance and oversight, economic growth can be a destroyer of jobs, as technology transfer and scaling up production reduces the need for unskilled labour.  This is particularly worrying considering the call for expanding investment in infrastructure and agricultural sectors during a period of declining support for the public resources needed to manage such complex activities and mitigate their negative effects. The role and support of domestic policy other than addressing governance issues and creating an ‘enabling environment’ for business is unclear.      

Co-organised by Eurodad Czech member Glopolis, this conference brings together more than 100 participants from leading civil society organisations (CSOs) and think tanks, including a large group of Southern allies. See the full list of participants here.

This rare gathering of policy experts on development finance, combined with solid preparations by Eurodad, Glopolis and several other members, will definitely bring new perspectives, set out clear strategies and not least provide an excellent networking, analysis and strategy session opportunity.

The agenda includes big plenary sessions with great panellists (experts from academia and other leading thinkers), as well as several stimulating workshops. There will also be one full day for strategising and several opportunities for planned and spontaneous meetings and other activities.

So, if you haven’t signed up yet, register here!

We look forward to seeing you in Prague in June!

The latest figures from the Organisation for Economic Co-operation and Development (OECD) on donor official development assistance (ODA) have been released. For the most part, the Development Assistance Committee figures do not make for very positive reading.

The majority of donors, particularly the largest by volume, have reduced their contributions to development assistance by $ 5.4 billion – from $ 133.7 billion to $ 128.3 billion between 2011 and 2012. In the European Union, the share of combined gross national income (GNI) to ODA fell from 0.44% to 0.42%, representing an overall drop of 7.3% in total ODA compared to 2011.

The poorest countries are hit particularly hard, with bilateral support to Least Developed Countries dropping by 12.8% or $ 26 billion. The OECD, the European Commission and civil society groups are calling for donors to meet their international commitments, which they have publicly reaffirmed time and time again. 

Aid effectiveness still an issue

Very little recent data on the effectiveness of development cooperation exists, as no comprehensive monitoring has been conducted since the Paris Monitoring Survey 2011. However, data on contract awards does exist and reveals a bleak picture.   

The OECD 2012 report on untying aid notes that many countries have officially untied aid, but the “very high shares of procurement that continue to go to enterprises in donor countries raises concerns about how untied some of that aid really is”. So, while aid may be untied de jure, it may not be untied de facto. The figures on contract awards unveil that much aid flows to donor country businesses rather than contributing to local economic development in recipient countries.

Incorporating private finance through leveraging and Public Private Partnerships (PPPs) has become commonplace in discussions surrounding aid effectiveness, particularly in terms of how to ‘crowd in’ investment in a manner that is pro-development. As Eurodad has pointed out, these types of financial flows are problematic for a variety of reasons, ranging from whether they are fit for purpose to measuring impact. Furthermore it is unclear whether they would provide real development additionality or would detract financing from gaps in the public sector. Further problems are related to transparency, accountability and the fact that the majority of the beneficiaries of these flows are firms based in OECD countries and tax havens.

Aid figures still inflated 

Not all the gains were positive. Austria saw an increase of 6.1%, primarily due to debt relief in sub-Saharan Africa. However, while debt relief is positive, civil society groups such as ActionAid and Aidwatch have argued for some time now that it should be additional and should not be counted towards ODA. Furthermore, as Aidwatch has repeatedly pointed out, the reported figures should not be taken at face value as they are inflated by other means such as including student and refugee costs. According to AidWatch, “[a]t least € 7.35 billion (14%) of EU aid was inflated aid in 2011”.

Several donors have expressed an interest in opening the ODA definition to include a variety of other financial flows outlined in a European Centre for Development Policy Management paper commissioned by the German and Dutch governments. This initiative was further spelled out in an OECD DAC discussion paper prepared before the high-level meeting held in London on December 4-5 in 2012. This paper notes that “the ODA concept may need to be re-examined in the light of two somewhat opposing critiques: first, that it is too broad, allowing the inclusion of items that do not involve cross-border transfers of resources and budgetary effort; second, that it is not broad enough, omitting or undercounting some official and effective efforts in favour of development.”

While DAC members have agreed not to open the ODA definition before 2015, a workplan is being developed that will explore new ways of incorporating cross-border flows such as climate finance and peacekeeping. There is also further pressure to represent ‘ODA neutral flows’ from Development Finance Institutions and other investment tools that focus on concessional lending rather than grants.

Overall, the DAC presents a mixed picture, which is mainly negative. Within Europe, most of the gains made in good faith were small compared to overall losses. Though the proportion of aid in government budgets is tiny, the economic crisis is frequently stated as a key reason for aid cuts. However, examples such as those of the UK show that it is possible to scale up ODA in difficult times when the right political priorities are set. Instead, many donors are looking for ways to increase their figures without scaling up commitments. Civil society watchdogs will have to keep a close eye on the discussions surrounding ODA to ensure that donors meet their commitments fairly and not by including dodgy financial flows that may or may not have a positive development impact.

This evaluation is broad in its coverage, as it includes “all support provided during the period 2004-2010 in all regions where the Commission support was implemented”. In terms of the funds, it includes important instruments, such as the European Development Fund (EDF), the Development Cooperation Instrument (DCI) and the EC’s budget support programmes. On the whole, it concerns a total of €2.4 billion of direct support to the private sector by the EC over the period covered.

How does EU support to PSD work?

According to the evaluation, the EU “is now equipped to address quite comprehensively the range of PSD needs in the different regions,” due to the wide array of mechanisms at its disposal, such as bilateral support, regional and centralised programmes and regional blending facilities. However, the evaluation concludes that “there is little evidence of a structured EU approach to exploiting the potential and complementarities of the set of support mechanisms and aid modalities at country level in support of the private sector”.

As Eurodad has recently pointed out, access to finance, particularly for small and medium-sized enterprises (SMEs), is often seen as a key constraint in many developing countries. However, the EC is still struggling with how to deliver aid money to this sector: although access to finance was the second largest area of EC direct support over the evaluation period, “Commission activities were not based on strong diagnostic approaches, and there is some evidence to suggest that the relevance of these particular activities suffered as a result”.

According to the evaluation, the impact of EC activities was mixed: “some activities at macro-level, including institutional and regulatory reform, showed positive impact, but others less so; at meso-level, significant capacity building support was given to financial intermediaries; but little evidence was found of improved access to finance by SMEs”. This casts doubts on whether these public resources are targeted in the right way to the sector most in need.

What is the EC’s real added value?

The evaluation looks at different types of EC value added. There are two important things to mention here.

First, controversially, the evaluation concludes that “a key value added provided by the Commission was that its grant money could be blended with loans.” The reason for stressing blending mechanisms lies on the assumption that the EC can leverage investment provided by international institutions and even private actors. However, this conclusion does not consider that leveraging entails big challenges, some of them in terms of assessing financial and development additionality of the public resources.

Second, the evaluation attempts to address the financial additionality by analysing “whether the EC was not displacing other players when providing such support, in the first place the beneficiaries themselves”. Once again, this point relates to Eurodad and others’ concern about using scarce official development assistance (ODA) to ‘crowd out’ or replicate existing sources of finance and to worries about using ODA to subsidise private sector activities.

Given the relevance of the issue, its conclusion is surprising: “Commission documents provide little information on the importance of avoiding support that could also be provided by the beneficiaries.” The appendix also mentions that “most reports did not address the extent to which beneficiaries could or could not implement a programme without the Commission’s support.” This lack of clarity indicates that the EC’s private sector interventions potentially do not have any clear additionality, either in terms of finance or in terms of development impact on the local economy of developing countries.

What about coordination, impacts and monitoring?

The evaluation also draws conclusions about key issues, such as coordination of EU instruments, impacts and monitoring and evaluation. Its conclusion rightly points out some of the major problems already highlighted by Eurodad and our partners. Here are some quotes to illustrate these points:

• On the architecture of aid: “Most support mechanisms had their own logic and mode of operation, with little internal coordination. The portfolio of PSD support in a country often stemmed from a juxtaposition of activities rather than from a structured PSD strategy with logical sequencing and distribution.”
• On maximisation of impact: “The EU’s PSD support in the different countries responded to needs but was generally not part of a strategy aiming at maximising the EU’s impact through clear prioritisation, a focus on value added, and on synergies with other actors and activities.”
• On Monitoring and Evaluation: “The EU carried out a wide range of monitoring and evaluation activities… Nevertheless, it remained difficult to obtain a clear and complete picture of the observed results, notably because of weaknesses in terms of monitoring and evaluation.”

Key recommendations and next steps

In a nutshell, the evaluation recommends that “the EU should continue to be a provider of a wide range of different types of private sector development support”. This broad statement gives the authors the opportunity to recommend, among other things, that “adopting a ‘generalist’ approach should not preclude the Commission from making sure that the conditions for maximising the impact of its PSD support are fulfilled, notably through diagnoses, prioritization, coordination between EU support mechanisms and appropriate M&E practices”.

The results of the evaluation will be officially presented on 22 April during a seminar aimed at a large audience, including member states representatives, European institutions and embassies of the countries where case studies were undertaken. So far, civil society organisations have not received an invitation to this event. We certainly look forward to discussing the findings of this evaluation with all relevant stakeholders.

If passed, this law will oblige EU-listed and non-listed big oil, gas, mining firms and the logging industry to declare payments they make in resource-rich nations. 

In response to today’s developments,

Catherine Olier, Oxfam’s EU development expert, said: 

“It’s excellent news that the EU is moving towards a law that will help ordinary people harness the natural resource wealth of their countries to be lifted out of poverty. But EU politicians today could have taken a bolder stance against tax evasion and corruption by including other sectors such as telecommunications or construction. Strikingly, poor countries lose more to tax dodging than they receive in aid each year.”   

Øygunn Sundsbø Brynildsen, senior policy officer at Eurodad, the European Network on Debt and Development, said:

“Despite today’s promising progress, there is still a long way to go to have EU legislation that properly fights tax dodging. While it is very important to know how much companies pay to governments, this figure alone does not give a clear picture of whether they pay their fair share of taxes. Multinationals will continue plundering developing countries until they are obliged to report information such as sales volumes, assets, staffing and profits. The currently negotiated EU banking sector reform is an example to follow in this regard.”

Although welcoming the Directive, Oxfam and Eurodad have mixed feelings about the deal: 

POSITIVE 

We strongly welcome the proposal because it is a huge step in the fight against corruption. If the legislation is finally adopted by the EU: 

• It will help citizens in resource-rich countries like Nigeria and the Democratic Republic of Congo to hold governments to account for their use of natural resource revenues and make sure that these benefit the many and not just the few. 
• It will oblige companies in the extractive and forestry sectors to disclose the payments they make to governments in all countries at project level - as opposed to reporting at government level only- and without any exemptions. The latter has been a contentious issue in negotiations as companies claimed that in some countries they would have to break national criminal laws which prohibit the disclosure of such information. However, such laws do not exist and companies couldn’t come up with any examples and EU member states finally agreed to remove that exemption which would have been a massive loophole. 

NEGATIVE 

 On the other hand, the proposal failed to: 

• Include other sectors beyond extractive and forestry such as telecommunications and construction which would widen corporate accountability and help both developing countries and EU member states better combat tax evasion and avoidance. In October 2012 the European Parliament’s Legal Affairs committee voted in favour of expanding the reporting requirements to the telecommunications, construction and banking sector. 
• Require companies to report on additional financing information such as production or sales volumes, numbers of employees and profits. Such basic accounting information that are already available to companies would allow to identify potential cases of tax dodging. 

For more information and comments, contact:

Oxfam: Angela Corbalan on + 32 (0) 473 56 22 60 or angela.corbalan@oxfaminternational.org

Eurodad: Øygunn Sundsbø Brynildsen on + 32 (0) 2894 46 44 or obrynildsen@eurodad.org

The international system for taxing multinationals is broken and out of date, with many loopholes which allow unscrupulous companies to avoid paying their fair share – as the recent Google, Ikea, Amazon, Glencore and Starbucks scandals have clearly shown.

Outdated rules

The OECD identifies aggressive tax planning by multinationals as a fundamental cause of base erosion, which includes tax avoidance and evasion. But countries such as the UK, Germany, France and the US have only asked for solutions when their own economies have felt the consequences. For many years, however, unfair tax rules have been seriously undermining efforts to tackle poverty in developing countries.

The current tax rules, which were written 80 years ago, assume that the different entities that form multinationals exchange goods and services as if they were mutually independent. But this is a fiction. These different subsidiaries follow an overall business strategy. The truth is that the tax system has not kept pace with the way multinationals operate.

Need global solution

Eurodad and the other organisations agree with the OECD that the fundamentals of the current tax system need revisiting. And because this is a global problem that requires a global solution, developing countries cannot be excluded from the process. We need tax justice for everyone, not just for rich countries. So far, the OECD seems not to have understood.

The new briefing paper, No more shifty business, calls on the OECD and G20 to work with the United Nations Tax Committee and governments in developing countries to define new rules for the taxation of multinationals.

The new rules must

• Ensure that each country is able to tax a fair share of the profits earned by multinationals operating within its territory.
• Treat multinationals as what they really are: complex structures bound together by centralized management, functional integration and economies of scale.
• Require multinationals to pay their taxes where their economic activities and investment are actually located, rather than in jurisdictions where their presence is fictitious and explained by immoral tax avoidance strategies.

The current tax system raises serious issues of fairness and compliance. Aggressive tax planning by unscrupulous multinationals hinders development and increases inequality. That is why civil society organisations across the world are calling on the OECD, G20 and UN Tax Committee to work together and find an alternative that reflects how multinationals actually operate today – and to make them pay their fair share of tax in all countries where they operate.

Read the full briefing.