'Sticking-plaster approach' will not end multinational tax dodging crisis

By agency reporter
October 7, 2015

New proposals on how to make multinationals pay their taxes amount to a ‘sticking-plaster approach’ which will leave global companies in a position to continue to cheat poor countries out of billions every year, Christian Aid has warned.

The proposals, from rich countries’ club the OECD, are the result of two years’ work on tackling systematic tax avoidance by multinationals – a problem described by the OECD as "a serious risk to tax revenues, tax sovereignty and the trust in the integrity of tax systems of all countries".

Christian Aid’s Principle Advisor on Economic Justice, Toby Quantrill, said: 'It is frustrating to see that the OECD correctly diagnosed the tax dodging crisis but has not been allowed to prescribe the right cures. Instead we have a sticking-plaster approach, which may provide limited improvement in some areas but is a long way from the comprehensive, effective solution that is required.'

Quantrill said the failure to identify effective reforms made further change inevitable. "Because of the inadequacy of the OECD proposals, further, more substantial changes to the global tax system in the coming years seem inevitable", he said. "They will represent a triumph of public opinion over political will and are most likely to be achieved by a more globally representative body than the OECD.

"The UK, along with the US, fought hard at recent international talks to ensure that the power to set international tax rules stayed with rich countries. Yet as Prime Minister David Cameron has acknowledged, tax is critical for all nations."

In relation to the new OECD proposals Toby Quantrill added: "Despite being clear what the problem was, any potential the OECD experts had to recommend effective solutions has been thwarted [by]governments’ unwillingness to stand up to multinationals and the tax avoidance industry.

"The result of their moral and political failure is that poor and rich countries alike may continue losing billions every year to multinationals. The price will be paid by ordinary people across the world, along with companies too small or too honest to avoid tax. They get worse public services and higher tax bills because many multinationals don’t pay their fair share.

"Lack of tax revenue also damages countries’ ability to protect people’s human rights, fight inequality and achieve the new Sustainable Development Goals.

"Developing countries, which are particularly ill-equipped to compete with the expensive lobbying, tax lawyers and accountants used by multinationals, are hardest hit."

The OECD's proposals flow its work on 'Base Erosion and Profit Shifting' (BEPS) which G20 countries tasked it with tackling two years ago.

BEPS is the way in which subsidiaries of the same multinational will sell goods and services between themselves to ensure that the main profits made are in tax havens. Christian Aid has estimated that this practice costs developing countries some US$160 billion a year in lost taxes.

Quantrill said one the most disappointing aspect of the OECD proposals was their failure to challenge the fiction that multinationals’ subsidiaries are independent of each other. "It is this fiction above all which allows multinationals to get away without paying their fair share of tax", he said. "For decades, they have pretended their profits just happen to arise in tax havens where tax rates are low and secrecy high but everyone knows this is a profitable lie."

Also deeply disappointing to Christian Aid is the OECD’s failure to include many developing countries in the discussions which led to today’s conclusions.

"As a result of being managed by the OECD, the process never included the poorest countries on an equal footing", said Quantrill. "Yet these countries will be asked to implement rules that they had no real part in developing and which will not solve their problems."

One potential point of light in the OECD proposals is their recognition of the value of country-by-country reporting, which can help tax authorities to identify suspicious practices that warrant further investigation.

However even here, the detailed proposals are fatally flawed. The information will not be made public, meaning it cannot be called transparent, and many of the poorest countries may never see the information they need.

The European Union is considering a genuinely transparent system of country-by-country reporting and it is imperative that this is not held back by the OECD failure to promote true transparency, says Christian Aid.

* Christian Aid http://www.christianaid.org.uk/index.aspx


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