G20 tax avoidance pledge ‘still leaves poor countries vulnerable’

Oxfam director Winnie Byanyima says what is on the table is not enough to stop poor countries being ‘bled dry’

Moves by G20 nations to tackle corporate tax avoidance are welcome but will only begin to uncover the full problem while leaving poor countries still vulnerable to exploitation, tax justice advocates and anti-poverty campaigners have said.

Leaders of the world’s richest nations resolved to finish in 2015 work on modernising international tax rules to address the issue of companies shifting profits and reducing government tax bases.

In their communique following the meeting in Brisbane, G20 leaders affirmed the principle that “profits should be taxed where economic activities deriving the profits are performed and where value is created”.

They also welcomed progress on taxing patent boxes, a practice whereby intellectual property royalties can divert profits from the countries where they are made.

G20 nations would automatically exchange information flowing from banks to tax authorities on a reciprocal basis and using a global common reporting standard by 2017 or end 2018, the communique said.

To address concerns of developing countries, G20 leaders welcomed deeper engagement from them in the “base erosion and profit shifting” (Beps) project run by the Organisation for Economic Co-operation and Development (OECD).

“We will work with them to build their tax administration capacity and implement [automatic exchange of tax information],” they said. “We welcome further collaboration by our tax authorities on cross-border compliance activities.”

However, Bessma Momani, an analyst with the Centre for International Governance Innovation, told an earlier media conference it was too early to see whether an equitable tax system would come to fruition on the basis of the G20 offerings.

Momani said G20 governments were still at the stage of discovery on matters of multinational corporate tax and needed to “change the rules of the game” because tax avoidance is completely legal.

ActionAid’s global advocacy coordinator, Sameer Dossani, said G20 countries were more concerned with raising their own tax revenue than ending “the ongoing plunder of developing countries”.

“To their credit, the Brisbane declaration addresses a crucial issue: where multinational corporations pay tax,” he said. “If an Australian mining company is making profit from selling what it mines in Africa, it should pay a fair share of tax in the African country.”

However, a concern about the reciprocal nature of sharing company tax information was that the complexity required for that kind of data collection meant it was “only an option for rich countries”, Dossani said.

Oxfam’s international executive director, Winnie Byanyima, said what was on the table currently was not enough to stop poor countries being “bled dry”.

Byanyima called for a worldwide tax summit because most developing countries were still excluded from decision-making on global tax issues.

She said it was unfair that the tax haven Luxembourg had a seat at the table while Sierra Leone – “where Ebola is raging and tax incentives for six multinational companies are eight times the health budget” – did not.

A federal opposition MP, Terri Butler, said she hoped the lack of reference to “tax avoidance and aggressive tax planning”, terms that were included at an international meeting last year, was not a result of pressure from large corporations. Only a reference to “harmful tax practices” was retained.

Butler also said it had been, until recent days, Australia that had been dragging its feet by resisting the adoption of the global common reporting standard for banks to tax authorities.

Anti-poverty campaigner ONE said Australia, as the president of the Brisbane G20, had taken a backward step by omitting from the communique a commitment to transparency in the mining industry, particularly on payments to governments in developing countries.

An ONE spokeswoman, Friederike Roder, said it was “a very negative sign” that Australia, with so many mining companies operating overseas, had removed a resolution obtained last year from the main summit statement.

Dr Mark Zirnsak, of the Uniting Church in Australia’s justice and international mission unit, said the mention of patent boxes was likely to “kill off” enthusiasm among Australian business for the practice.

Zirnsak said there were other “real positives”, including the specific reference to the Beps action plan, which if followed through would have ruled out such favourable tax deals given to corporations as revealed by the recent “Luxleaks” scandal.

The G20’s research group co-director, John Kirton, said the practice of “offshoring” – in which companies shift headquarters from their countries of operation to seek out lower-taxing jurisdictions – raised the question of what is the right level of corporate tax among G20 companies. “We can all race to the bottom,” he warned.

Kirton also noted it was multinational corporations that had the means to avoid tax by jurisdiction shopping, not the small- to medium-size enterprises that accounted for the bulk of jobs in any economy.