Business among friends: Why corporate tax dodgers are not yet losing sleep over global tax reform
by Eurodad member Oxfam
shows how tax rules are rigged in favour of multinational corporations and how the G20’s current approach to tax reform is at risk of being dominated by a legion of corporate lobbyists. The report argues that commercial interests must not be allowed to pursue their agenda at the cost of the public interest. All developing countries must be included in negotiations, and corporations must pay what they owe.
Fair tax regimes are vital to finance well-functioning states and to enable governments to uphold citizens’ rights to basic services, such as healthcare and education. Tax dodging by big corporations deprives governments of billions of dollars and drives rapidly increasing inequality. While recent G20 and OECD moves to clamp down on corporate tax dodging are a welcome first step, the report states that opponents are set on undermining them, and most developing countries, which lose billions to corporate tax dodging annually, are being left out of the decision making.
The report urges the OECD, G20, World Bank, IMF and country governments to take into account the following recommendations:
Within the OECD Action Plan on BEPS, G20 and OECD members should:
- Open up negotiations to reform tax rules, so that all countries can participate in the decision making process on an equal footing;
- Promote worldwide tax transparency by requiring MNCs to make country-by-country reports publicly available for each country in which they operate, including a breakdown of their employees, physical assets, sales, profits, and taxes (due and paid), so that there can be an accurate assessment of whether they are paying their fair share of taxes;
- Address other key issues that contribute to tax base erosion and hit developing countries hardest, such as harmful tax competition, changes to the allocation of tax rights (source vs residence principle), and taxation of extractive industries.
As part of the G20 Presidency programme, G20 countries should:
- Request that the OECD report to be delivered in September 2014 to the G20 Development Working Group (on the impact of BEPS in developing countries) be made public and be considered within BEPS negotiations;
- Agree a programme to support the integration of developing countries to build effective tax systems and better co-ordinate the work between the ‘Finance Track’ (the G20’s co-ordination process for all financial and economic issues, composed of all G20 Finance Ministers and Central Bank Governors) and the Development Working Group of the G20;
- Work with the IMF, World Bank, UN, African Tax Administration Forum, Inter-American Center of Tax Administrations, and other relevant bodies to develop a coherent plan to help developing countries strengthen their fiscal administrations in order to tackle base erosion and profit shifting in the future;
- Implement a multilateral system for exchanging tax information on an automatic basis, which would include developing countries from the start with non-reciprocal commitments (i.e. no obligation to send information until they have established the capacity to do so).
Launch a more comprehensive international tax reform
- All countries should promote a proposal to establish a WTA to ensure tax systems deliver for the public interests of all countries. A WTA could independently follow global tax developments and gather statistics; be a forum for discussion on international issues related to tax policy; tackle tax competition by setting common minimum tax rates to prevent a ‘race to the bottom’ on corporate taxation; exert peer pressure on countries/jurisdictions that enable companies to be free riders; and develop best practices and codes of conduct on tax-related issues.
- The WB and IMF should host a joint agencies’ meeting to reanimate the 2010 G20 Seoul initiative that led to the joint agencies’ recommendations on supporting the development of more effective tax systems, and agree on a plan to help developing countries build effective tax systems that will lead to better global governance of international taxation.
- The IMF should conduct research on possible alternatives to the OECD’s Arm’s Length Principle, such as unitary taxation, and their impact on base erosion and profit shifting in developing countries.
- All governments, but developed country governments in particular, should give financial support to the UN Tax Committee to facilitate innovative discussions on topics including changes to the allocation taxation rights of companies, and explore alternatives to the Arm’s Length Principle.
- All governments and tax policy-making bodies should introduce and abide by a code of conduct that ensures that businesses and accountancy firms, and their personnel, avoid any conflicts of interests when being paid or hired by decision makers to ‘provide intelligence and innovation’, and ensure that commercial interests do not take precedence over the interests of the public.
To read the full report, please click here
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