by Winnie Byanyima
After the world was plunged into a financial crisis, back in 2009, G20 leaders promised to clean up the international tax system, once and for all. The result – five years on – is a plan of action devised for them by the Organisation for Economic Co-operation and DevelopmentOpens a new window (OECD) to tackle Base Erosion and Profit ShiftingOpens a new window (BEPS), a series of tactics used by multinational companies to make profits ‘disappear’ or move to another country, to pay less or even avoid paying corporate taxation.
This action plan is obviously a much needed and welcome step. The current dysfunctional international tax rules are allowing scores of multinational companies to pay minimal tax bills in the countries where economic production takes place, compared to the profits they are earning and often hiding offshore. They also fuel a system of unhealthy competition abused by companies, where developing countries enter into a race to the bottom to offer the most competitive tax rates and unfeasible tax breaks, in the hope of attracting foreign investment to their shores. And they exacerbate inequality, because it’s the least well-off economies who are being hit hardest.
It’s estimated that the tax gap, in other words the amount of tax liability not paid by multinationals to developing countries, is about $104 billion a year. One discreet example of corporate tax dodging illustrates the kind of impact this has for the public; Peru’s tax administration audited just a fraction of corporate transactions involving transfer pricing in 2013, and uncovered a sum equivalent to US$ 105 million in unpaid tax – almost enough to fund the whole maternal neonatal public programme.
So why, when developing countries are so obviously impacted and when better tax structures could be of such monumental benefit to poorer economies, are these nations not being involved in any plans for tax reform? The OECD’s negotiations have failed so far to include any developing countries in the process on an equal footing. There have been attempts to ‘consult’ some of them but on such a serious issue as an international tax reform, more than mere consultation is needed.
Currently the reform led by the OECD leaves four fifths of the planet on the side and is posing a huge risk that any revisions to global tax rules will only reflect the interests of the wealthiest and most powerful nations.
Oxfam believes that any global talks to reform tax rules must include all countries, including the poorest. Policy makers and influencials representing the G20 and other OECD members must use the opportunity of the OECD Forum, taking place in Paris next week, to commit to doing this.
If done properly, the G20/OECD BEPS project presents a unique opportunity to overhaul international corporate tax rules to the benefit of all economies, an opportunity too rare and important to be squandered.
But beyond that, we need to raise our ambition on tax reform. Global governments should start seriously talking about the creation of a World Tax Authority with the mission to ensure that tax systems will deliver for the public interests in all countries.
Winnie Byanyima is Oxfam International Executive Director.
This blog originally appeared at blogs.oxfam.orgOpens a new window
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