As regular readers of my occaisional blog posts will know I have had a bee in my bonnet for some time about the how we understand (and frequently misunderstand) the ‘big numbers’ about international tax evasion and avoidance (and related illicit flows), and what they might mean in relation to finance for development.
I am now working on a small project with the Center for Global Development to build shared understanding of these numbers. Most excitingly the project has an advisory group which includes campaigners and tax experts engaging constructively together.
Here is the ‘launch’ post, reblogged. Do comment here, or over at CGDev. And if you would like to be involved as a reviewer get in touch with me: h…m….@gmail.com (i.e. email address is the same as the WordPress title)
Taxing Multinationals: Is There a Pot of Gold of Finance for Development?
Taxation, which has been a Cinderella subject in development, has finally been invited to the ball, but the arguments that have helped to push taxation up the finance-for-development agenda may also be in need of clarification.
There is widespread perception that:
- There are huge areas of untaxed or undertaxed economic activity in the poorest countries
- Undertaxing is mainly a product of clever “tax-dodging” practices of multinational corporations, with armies of lawyers and accountants, and
- Gaps in basic health care, education, and infrastructure could be solved by a few changes to international tax policy and transparency.
These views are often expressed by campaigners who have played a key role in pushing the complex and technical topic of international taxation into the spotlight. They believe that reforming taxation of multinational enterprises would deliver amounts of money that could unlock major development benefits for the poorest countries; enough to offer a path out of poverty for billions of people (Action Aid), get every child into school four times over (Oxfam), end world hunger (IF Campaign) or prevent 3.6 million deaths in the world’s poorest countries (ONE campaign).
It is certainly true that the potential for domestic resource mobilization dwarfs all other forms for financing for public spending, and it is also true that countries have achieved significant gains by concentrating on improving tax collection. But there are methodological issues with some of the calculations of taxes lost, and the particular issues they relate to.
And more broadly there is an inconvenient truth that these ‘big numbers’ (in the region of $100 billion) are just not that big, amounting to a 1 or 2 percent increase in overall tax revenues, according to a recent study by UNCTAD, with the biggest sums concentrated on larger emerging economies. The headlines about bringing billions out of poverty and closing gaps in basic services seem to be based on the assumption that every penny of additional tax raised would go to social spending and would cross borders effortlessly. But taxes raised in countries such as China, Indonesia, and Russia are unlikely to be available for buying mosquito nets and exercise books in Mozambique and Mali. (NGOs are not the only ones to say this: the OECD’s soundbite that developing countries lose three times more to tax havens than they get in aid seems to be based on a similar conflation of big and small economies).
A polarizing dynamic has emerged in which these numbers, and the perception that they represent problem-solving sums of money for the poorest countries, have got a life of their own, and have become a barrier to understanding the problem of domestic resource mobilization. While no one argues that initial rough estimates are sufficient for evidence-based policymaking, criticizing or questioning these estimates often tends to attract rebuttals and accusations of “defending tax dodging”.
That is not constructive. Tax policy discussions should be based on sound analysis. Civil-society advocates, policymakers, and tax experts need some common ground of concepts, definitions, and data to be part of the same conversation.
We are contributing with a small project to determine how estimates related to tax avoidance and tax reforms should be interpreted, what they tell us about the potential for specific policies to raise taxes in specific countries, what we know (with what degree of confidence), and what has just become de facto common knowledge because it has been repeated so often.
The result will be a short report with a long acknowledgements list. As a first step we have drawn together an advisory group including Alan Carter, HMRC; Paddy Carter, ODI; Mike Devereux and Judith Freedman, Oxford Centre for Business Taxation; David McNair, ONE Campaign; Robert Palmer, Global Witness; Wilson Prichard, International Centre for Tax and Development; Heather Self, Pinsent Masons; Mike Truman, recently retired as editor of Taxation; and Marinke van Riet, Publish What You Pay (all participating as individuals). Alex Cobham from the Tax Justice Network also participated in the first meeting to discuss the issues.
There was considerable agreement among the group that better analysis is needed to support nuanced policy discussion but disagreement about whether the initial use of rough-and-ready calculations and name-and-shame accusations was justified as a way to raise attention about a poorly understood and under-resourced policy area.
What do you think? Do the ends justify the means? What is the best way forward to improve domestic resource mobilization?
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On January 7th, like many others, I watched with horror the shaky mobile phone videos of masked gunman on the streets of Paris.
Since then I’ve read the blogs and commentary on religion and freedom of speech, and I’ve discussed the issues with my teenage children, as they have tried to make sense of it for themselves. Salil Tripathi’s commentary is the best thing I’ve read; restating the principles that “freedom of expression is fundamental; that religion is an idea; that nothing, no idea, is sacred; that ideas don’t have rights, people do”.
But on January 7th there was also homework to do and schoolbags to pack. Checking over my son’s bag I noticed his Religious Education (RE) homework on Islam and Mohammed. Each time Mohammed’s name appears on the printed worksheet it was followed by the acronymn ‘PBUH’ (Peace Be Upon Him) and at the bottom there was an instruction to remember not to use any images of Mohammed.
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This week the Daily Mail created a stir by reporting that t-shirts produced for the Fawcett Society by Whistles, and modelled by British political leaders, had been made in ‘Sweatshop conditions’ in Mauritius.
I’m not a big fan of gesture politics, overpriced boxy t-shirts, or the Daily Mail. But I am a feminist and I know a little bit about the apparel industry.
This is not what a sweatshop looks like.
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Reblogging my post from the International Centre for Tax and Development:
Taxation is important for development, not only because taxes provide the revenues to fund public services and infrastructure, but because they are a critical accountability link between governments and citizens.
Regular headlines and report findings tell us that a major problem keeping poor countries poor is that large corporations use clever techniques to avoid paying their fair share of tax:
- “The money that developing countries lose each year because of the tax antics of big business is very nearly one-and-a-half times what they receive in terms of aid. So, on the one hand, you’ve got relatively rich governments handing out aid, but at the same time you’ve got the multinationals busy taking out as much as they can from those countries.” (Christian Aid)
- “If multinational companies were taxed fairly, developing countries could raise an extra $242 billion to tackle inequality.”(Oxfam)
- “Developing countries lost US$5.86 trillion to illicit financial flows from 2001 to 2010 and […] corporate tax abuses such as transfer mispricing accounted for 80 per cent of those outflows.” (International Bar Association)
- “[Developing countries] lose between €660 and €870 billion each year through illicit financial flows, mainly in the form of tax evasion by multinational corporations”(Eurodad)
- “Tax dodging corporations are depriving the world’s poorest countries of billions of dollars they could use to feed their people” (IF Campaign)
It’s a shocking message, but one that is also appealing in that it identifies familiar, satisfying and conveniently accessible culprits for underdevelopment.
It is an argument with undeniable moral power, but most compellingly of all it offers the promise that a few relatively simple international interventions could unlock massive new flows of revenue to governments in the poorest countries. Respected development organisations tell us that stopping this international tax avoidance could release resources on a scale that would solve the most urgent challenges for development:
- The IF campaign estimated that corporate tax avoidance is costing developing countries an estimated £70bn a year, which could be used to save the lives of 85,000 children under the age of five in the world’s poorest countries every year.
- Action Aid stated that tax losses recovered in Africa would be enough to achieve universal primary education and universal healthcare, with enough money left over to upgrade Africa’s entire road network[i]
- ONE said that as many as 3.6 million deaths could be prevented each year in the world’s poorest countries if tax avoidance due to trade mispricing was addressed.
- Christian Aid said that tax avoidance costs the lives of 1,000 children a day.
As Christian Aid point out if you do, you risk looking like you want to detract attention from the consensus on tax dodging and developing countries. And people will probably assume that you are an apologist on the payroll of Big Tax Avoidance.
But still, not looking too closely at the evidence puts those who are concerned with tax and development at risk of conveying misunderstandings, distorting our own priorities, missing chances for constructive engagement, and ultimately risking advocating for poor policy. So I think it is worth taking the data seriously and not just using it for decoration. Continue reading ‘Corporate Tax and Development: opening Pandora’s Box’
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Copper is one of those unsung workhorses behind the wonders of the modern world. Its in the printed circuit board of your smart phone, in the wiring and plumbing embedded in the walls of your house, anywhere there is a motor or turbine whirring, from the biggest powerstation to the fan that stops your computer overheating there are coils of copper involved.
You probably knew that. But I bet you have no idea what the price of kilo copper is.
Its another one of those wonders that you don’t have to. Somewhere around the world people are digging up ore, refining it and processing it into wires and sheets, trading it and shipping it, without the people who benefit having the faintest idea what the price is.
But all too often, though, the countries where metals and minerals are mined receive too little for their natural resources, or the revenues that they do earn are not stewarded by governments for the benefit of their people, but are captured through secret contracts and unreported payments, and hidden away in offshore bank accounts.
Alex Cobham at the Centre for Global Development says that this happened spectacularly in Zambia in 2008, through the involvement of Swiss commodities traders – He gives the startling statistic that
“if Zambia had received the price for its copper that Switzerland declared on re-exporting the exact same copper, then Zambia’s GDP would have nearly doubled; the economic impact if we are able to sort out trade prices is potentially enormous”
When I first heard this story, I thought ‘that is absolutely terrible’, but the more I saw the statistic quoted and the more I thought about it, something bugged me – Zambia is a major copper exporter, and Switzerland is a major trader: why didn’t anybody notice? Continue reading ‘Swissploitation?’
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The Fair Tax Mark is a good idea. A clear benchmark for responsible practice in tax management would go a long way in providing clarity to the debate on tax and corporate responsibility. A consultation draft of the FTM criteria for UK based multinationals was released last week. It is a blink-and-you’ll-miss-it open consultation period so here are my quick thoughts (as a non tax expert, but a representative of the non-specialist, but interested core audience for such a tax mark).
The key principles for the criteria are based on transparency and operating within the spirit of the law. Like the FTM’s earlier criteria for UK domestic businesses, the new standard focuses heavily on process measures; 65% of available points (the initial pass mark) are awarded for policy, governance and transparency . There is much to recommend here; providing full accounts, transparency on beneficial ownership, disclosure of subsidiaries and disclosure of tax policy and who is responsible for it. All good stuff. Continue reading ‘Fair Tax Mark: duck or rabbit?’
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Tax is a serious topic. It is serious because because taxes pay for the infrastructure, security, healthcare , education and social safety nets that our economies and our welfare depend on. It is serious because raising funds through general taxation rather than relying rely on aid or natural resource rents is what makes for accountable government. And it is serious because robust, effective and well enforced taxation rules are crucial for fair competition and to avoid distorting and discouraging economic activity.
Tax dodging has become a big issue of public debate. For non-tax-experts (of which I am one) our mental map of the territory tends to look something like this:
On one hand are companies and individuals that follow the rules and pay all the taxes due. On the other side are companies and individuals that evade taxes through illegal means. And in the badlands in the middle are tax avoiders – companies and individuals that stretch the rules and exploit loopholes to get around paying a fair amount of tax without actually breaking the law. Continue reading ‘A constructive proposal on tax’
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