• Houston We Have A (Tax) Problem

    Posted by Ben

    22 July, 2013

    On Friday, the Finance Ministers of the G-20 met in Moscow to talk tax. To facilitate the discussion, the members-only club of rich countries, the Organisation for Economic Cooperation and Development (OECD), put forward its Action Plan on Base Erosion and Profit Shifting (pdf). Translated from Bureaucratese, that's an action plan to tackle aggressive tax avoidance and evasion by multinational corporations.

    Unfortunately, it's a plan that is good on recognising some aspects of the problem but not so good at taking a root-and-branch approach to tackling that problem.

    G-20 Finance Ministers

    The action plan recognises that the problems caused by multinational tax avoidance are real, and they cause real harm to governments, to taxpayers, and to businesses – particularly domestic businesses who are unable or unwilling to make the same use of tax avoidance opportunities available to multinational companies.

    It even notes that tax avoidance by multinationals causes particular problems for developing countries as, "the lack of tax revenue leads to critical under-funding of public investment that could help promote economic growth."

    So, that's positive. Admitting you have a problem is the first step towards fixing it.

    The action plan also puts forward a number of suggested ways to address some of the ways that multinationals are able to "game the system".

    It gives a cautious nod in the direction of requiring multinationals to report on their income, economic activity and taxes paid in every country in which they operate, but without laying down a firm commitment to country-by-country reporting. Without this level of transparency, governments will continue to be unable to identify many forms of tax avoidance used by multinational corporations and unable to claim the taxes they are legitimately due. In the poorest countries, this tax gap will continue to mean that citizens do without basic social services, and suffer worse health and economic opportunities than they should.

    The action plan notes the problems caused by multinationals exploiting gaps in the global tax rules and making use of secrecy jurisdictions and tax havens to organise their transactions and arrange their tax affairs without those arrangements adding any value to the work they do. And it proposes some fixes, or further work to develop fixes, to address some of these problems.

    However, one of the most pressing problems with the action plan is who is and who is not involved in developing and implementing the solutions. The OECD had no choice but to agree that the non-OECD developing country members of the G-20 should be involved in taking this action plan forward. India, China, Argentina, South Africa, Mexico and the other large developing countries in the G-20 are too important as global economic actors to be ignored.

    However, there is no commitment and no process to involve the vast majority of the world's poorest nations. This is despite the fact that these countries lose vastly more from multinational tax evasion than they receive in aid and suffer terrible human consequences as a result of the lost revenue. All the OECD is prepared to say is that, "Other non-members could be invited to participate... on an ad hoc basis." 

    Oh, and expect the Treasurer, Chris Bowen, to float some possible options for domestic action when the Government releases its response to submissions on tackling multinational tax evasion in Australia.

    However, from what we've been hearing, expect those actions to do a little bit to help Australia identify and reduce multinational tax avoidance here at home without doing much of anything to help developing countries.

    The tax justice network and The Conversation have more analysis of the OECD action plan.

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    Ben Thurley is Micah Challenge's Political Engagement Coordinator.