• The G20 Wrap: Some small steps, but no giant leaps

    Posted by Jennifer

    10 September, 2013

    “Developing countries should be able to reap the benefits of a more transparent international tax system, and to enhance their revenue capacity, as mobilizing domestic resources is critical to financing development. We recognize the importance of all countries benefitting from greater tax information exchange.”  (G-20 Leaders’ Declaration, September 6, 2013)

    The Leaders of the world’s 20 largest economies, the G-20, met last week in St Petersburg to discuss a number of global challenges. Addressing the tax dodging practices of corporations and individuals which deprive governments of both developed and developing nations of valuable revenue was high on the agenda.

    The Leaders’ Declaration included the statement above which suggests a genuine commitment to including developing countries in this ongoing international conversation about reforming the global tax system. However, the Summit failed to produce tangible mechanisms for facilitating this inclusion.

     

    Building upon momentum formed by the G-8 and OECD forums earlier in the year, the Summit did deliver some positive commitments:

    - It endorsed the Action Plan of the OECD released earlier this year to address the challenges posed by Base Erosion and Profit Shifting (BEPS), which is bureaucratese for multinational corporations artificially shifting profits from the countries in which they derive their income to low-taxing jurisdictions in order to avoid paying their fair share of tax. 

    - It restated a commitment to create the automatic exchange of taxation information between countries (rather than the current “on request” model) as a new global standard, whereby tax authorities are obliged to automatically share information concerning taxpayer activities outside of their own country. Notably, it committed to achieving this by 2015 among G-20 member countries. However, there is no timetable for including the vast majority of developing countries which aren’t represented in the G-20.

    - Disclosure of beneficial ownership was briefly mentioned as a potential standard to work towards, but no commitment was made to enforce this.

    Country by country reporting as a viable method of addressing BEPS was conspicuously absent from the G-20 document. This is a an extraordinary lack, as it is one of the few policies with global tax implications that Governments can effectively act on unilaterally.

     

    Shine the Light: Where do we stand?

    Micah Challenge’s Shine the Light campaign has 3 key policy asks in its encouragement to the Government to stand for the poor when addressing the challenge of tax dodging. From the recent G-8 and G-20 meetings, there has been some progress, but there is much more to do:

    1) Country by Country reporting as a global standard has failed to gain traction within the international forums of the G-20 and OECD, despite having been introduced for certain industries in both the European Union (mining, oil, forestry and banking) and United States (mining, oil and forestry).

    Micah Challenge maintains that domestic legislation requiring companies, particularly in the extractives industry, to report their financial activity on a country by country basis (rather than as an aggregated global amount) is one of the most effective potential means to reduce the negative impact of tax dodging by multinational corporations.  However, Australia has demonstrated limited willingness to introduce domestic legislation to this effect.

    2) Automatic Exchange of Tax Information has been endorsed as the new global for international standards of transparency in tax matters by both the G-8 and G-20. Positive steps are being made towards achieving this goal in much of the developed world, although it would seem that developing countries are being left behind. Australia is a signatory along with 54 other countries to a convention which requires automatic exchange. However, the concern is that developing nations are largely excluded from reaping the benefits of such initiatives.

    3) The language surrounding Disclosure of Beneficial Ownership in the G-20 communique is weak, and offers little more than a promise to think about doing more. Since shell companies, anonymous trusts and other opaque corporate vehicles are at the heart of most tax avoidance schemes, this is a significant failing. Australia, sadly, has failed to introduce any legislation which would require the disclosure of beneficial owners of companies, trusts and other corporate vehicles.

     

    The outcome of the G-20 represents a few more small steps in the right direction on global tax reform; however, there have not been any great steps forward. Tangible mechanisms to include the voices of the poor at the table have been lacking and consequently it is the developed nations who are defining and directing the conversation at the international level.

    We call upon the leaders of the developed world to back-up their rhetoric of inclusion by bringing in developing countries from the sidelines of these debates.  

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    Jennifer Vaccari is the Political Engagement Intern at Micah Challenge.