The group of twenty (G20) industrialised and emerging nations have agreed at the 2014 Brisbane G20 Leaders’ Summit to fight tax evasion head-on-a move that would put Ghana and other developing countries in a proper position to fully collect taxes from multinational corporations engaged in tax evasion.
“To prevent cross-border tax evasion, we endorse the global Common Reporting Standard for the automatic exchange of tax information (AEOI) on a reciprocal basis. We will begin to exchange information automatically with each other and with other countries by 2017 or end-2018, subject to completing the necessary legislative procedures,’’ says the Brisbane G20 Leaders’ Summit communique.
The African Union estimates that Africa loses up to $60 billion each year due to tax dodging by big companies. That is more than they receive in aid from rich countries.
Such multinational corporations make use of the complicated international financial system such as tax havens in other countries other than the one in which they operate to rip off countries of the due amount of tax. In this case, the corporations avoid paying taxes on profits made due to the fact the countries are unware of the profits made through their operations in a given country.
The 2014 G20 summit held in Brisbane, Australia from November, 15-16, 2014 also witnessed strong commitment to ensure fairness of international tax system and to secure countries’ revenue bases.
“Profits should be taxed where economic activities deriving the profits are performed and where value is created. We welcome the significant progress on the G20/Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan to modernise international tax rules.
“We are committed to finalising this work in 2015, including transparency of taxpayer-specific rulings found to constitute harmful tax practices. We welcome progress being made on taxation of patent boxes.
“We welcome deeper engagement of developing countries in the BEPS project to address their concerns. We will work with them to build their tax administration capacity and implement AEOI. We welcome further collaboration by our tax authorities on cross-border compliance activities,’’ the communique stated.
According to the communique, developing countries will make meaningful input into the development of BEPS measures. The proposed structured dialogue would cover BEPS issues most relevant to developing countries, in particular the BEPS Action Plan, tax incentives and comparables pricing.
On anti-corruption, the G20 leaders endorsed the 2015-16 G20 Anti-Corruption Action Plan that will support growth and resilience through building cooperation and networks, including to enhance mutual legal assistance, recovery of the proceeds of corruption and denial of safe haven to corrupt officials.
“We commit to improve the transparency of the public and private sectors, and of beneficial ownership by implementing the G20 High-Level Principles on Beneficial Ownership Transparency,’’ the communique says.
The communique raised lots of comments from civil society organisations with mixed reactions to the commitment of the leaders.
Michael Callaghan, director of the G20 Studies Centre at the Lowy Institute, Australia, says the G20 is trying to stop tax evasion practice by preventing mobility of multinational companies from shifting their profits to countries with tax haven jurisdictions.
“The reason it is on the agenda here is because this became a big political issue in advanced countries, where you have countries like the UK, Australia, reports that corporations that have large operations did not seemed to be paying much tax’’.
People have always expressed worry about the issue of tax evasion in developing countries even though it has been on the G20 development agenda since 2011 but did not get lots of profile, he said.
“One of the concerns has always been that developing countries have not been in the thick of it, negotiating, but one of the advances is that the G20 countries are actually extending it to include more developing countries,’’ stated Callaghan of Lowy Institute, a think tank based in Brisbane.
“The International Organisations’ proposal for structured dialogue process with developing countries on tax matters is extremely important, because it does mean there are representatives of developing countries to represent the interest of developing countries on tax issues.
“This is of very vital importance to developing countries because the best of assistance you can give to developing countries is to help them collect tax, particularly the tax from larger corporations which is far more important than all the development aid you can give them,’’ he noted.
ActionAid’s Global Advocacy Coordinator, Sameer Dossani says “to their credit, the Brisbane declaration addresses a crucial issue: where multinational corporations pay tax.
“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. We hope and expect this this will be translated to cornet action benefiting developing countries”.
“The G20 countries are more concerned with raising their own tax revenue than with establishing global solutions which will end the ongoing plunder of developing countries. Underfunded health care schemes in West Africa have in part led to the catastrophic spread of the Ebola virus. Better quality public services, funded by ending corporate tax dodging, is the long-term solution,” Dossani added.
Friederike Röder, from The ONE Campaign stated that despite all the progress in the fight against tax evasion and corruption made this year in the run up to the summit, the G20 leaders have fallen at the final hurdle, talking up their commitment to transparency but failing to deliver it.
“It’s a job half done: the G20’s beneficial ownership principles state that transparency of beneficial ownership of legal persons and arrangements is a high priority, yet they have not agreed to put information in the public domain. It is critical that people have information on what governments and businesses are doing so that they can be held to account enabling journalists, NGOs and others to fight corruption.
“The G20 has also failed to adequately address solutions for the world’s poorest: developing countries without strong systems will not be able benefit from the automatic exchange of information from the very start.
“ONE is asking countries to keep up their efforts and to be ambitious in the fight against tax evasion and corruption, especially in Europe,” Röder emphasised.
Porter McConnell, Manager of the Financial Transparency Coalition is of the view that the G20 leaders have been discussing the ravaging effects tax evasion, avoidance and money laundering have on our economies, but they seem to discuss the problem every year.
“It’s a vital step that G20 leaders have recognized the importance of collecting information on the beneficial owners of companies.
But the fact that the word ‘public’ is still missing from both beneficial ownership registers and country by country reporting standards shows that G20 leaders aren’t fully committed to finding the strongest solutions,’ McConnell says.
“Although the OECD has talked of giving developing countries a true seat at the table, it seems to be a bit further away than all the others,” said Pooja Rangaprasad of the Centre for Budget and Governance Accountability.
“Exclusion of developing countries in the automatic information exchange is troubling, as they are most severely affected by illicit flows,” Rangaprasad noted.