Regulation of multinationals should be tougher, says Christian Aid

By agency reporter
October 27, 2011

New plans to reveal more about multinationals’ finances will help tackle corruption in the oil, gas and mining industries - but need toughening up if they are also to help poor countries fight multi-billion pound tax dodging, says UK-based international development agency Christian Aid.

"The latest proposals are a welcome step forward against corruption but they do nothing to deal with corporate tax dodging, which costs developing countries significantly more than they receive in aid," commented Joseph Stead, Christian Aid’s Senior Economic Justice Adviser.

The proposals in the Transparency and Accounting Directives, published this week by the European Commission, require companies in the extractive and forestry industries to publish their payments to governments for each country in which they operate.

Mr Stead explained: "This information will help people hold their governments to account about what they are doing with the money they are receiving from multinational companies - and that is important."

"However, corporate accountability is equally important. Unless these proposals are expanded to cover firms in all industries and to require greater financial detail than the Commission is currently suggesting, then companies will be able to keep siphoning profits out of developing countries on a massive scale," he added.

Christian Aid estimates that tax dodging by multinationals costs developing countries some $160 billion a year in lost revenues. The development agency is campaigning for businesses to provide full financial reports for every country in which they operate – so-called country-by-country reporting. This would allow tax dodging to be better identified and stopped.

Savior Mwambwa, Executive Director of the Centre for Trade Policy and Development, a Christian Aid partner in Zambia said: "A major part of the solution is for governments to require companies to reveal more about their finances, with details such as profits made and taxes paid published for every country in which they operate."

"This sort of information would help tax authorities – including Zambia's – to identify suspicious cases where companies appear to be artificially shifting their profits out of poor countries and into tax havens. It would not transform the balance of power between tax collectors and a company's army of tax accountants and lawyers - but it would help," Mwambwa declares.

The proposals now go to the European Parliament and Member States to amend and adopt them - with pressure on the British government and others to respond.

"The EU has opportunity to lead the world on transparency and we urge the European Parliament and Member States to act now to improve these proposals," said Mr Stead.

"Extending them to cover all industries and so that they require enough information to help catch tax dodging is vital – as is closing the loopholes which will allow firms to avoid reporting their payments in some countries. The proposals’ definition of ‘project’ also needs a serious re-think," he added.

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