By Emma Seery of Oxfam
While disagreements over Syria are likely to dominate the annual G20 summit in St Petersburg this week, leaders are at least in agreement about one key issue on the table: the need to rewrite global corporate tax rules.
As the OECD acknowledged this year, current laws – some dating back to the 1920s – are simply no longer fit for purpose in a modern globalised world. Created to avoid the “double taxation” of companies working in more than one country, they are now being abused by companies using transfer pricing to avoid paying tax where they do business – sometimes avoiding paying tax in any country.
The scandalous result is that the world’s poorest countries are losing $160bn a year – resources that could be spent on tackling poverty and boosting their economies. In the two days of the G20 summit alone, the money being siphoned out of developing countries by companies would be enough to pay for the entire annual education budgets of Kenya and Tanzania.
As the economic crisis continues to bite, forcing governments and people around the globe to tighten their belts, it’s easy to see why tax dodging by multinational corporations has caused a tidal wave of public outcry. To its credit, the UK government took leadership on the issue at the G8 summit back in June and waved a red flag at tax dodgers, warning them that their days of ripping off rich and poor countries alike were numbered.
But while the G8 saw some movement towards improving tax haven transparency and an acknowledgement of the need to ensure poor countries are included, it is the G20 which has all the big players at the table. This is where the main action needs to takes place.
In April, G20 finance ministers backed the multilateral Convention on Mutual Administrative Assistance in Tax Matters and China became the final G20 member to sign up to it last week.
But for all the goodwill, pledges and agreements, people in the poorest countries will be left behind in the race for tax reform unless world leaders seriously up their game. We need much more than the warm words in the G8 communiqué to ensure that tax dodging no longer undermines the fight against global poverty.
More than half of the world’s poorest people live in G20 countries, so making sure G20 countries are getting the taxes they are owed is obviously critical in the fight against poverty. But poorer countries – those particularly affected by corporate tax avoidance – must be invited to the negotiating table, and so far they are not.
It can’t be assumed, as it often is, that the interests of countries such as Brazil, India, South Africa or Indonesia (let alone Russia or the US) are synonymous with those of smaller developing countries outside the G20 tent.
As a first step, the G20 could agree that each of its members will analyse the effects of their individual tax policies on developing countries, and invite the smallest developing countries to be part of the OECD’s discussions on how to crack down on base erosion and profit shifting. And they must urgently find a common way of taxing companies where they are making their profits so they can no longer avoid their dues. This would be a massive step towards a fairer tax system. But even this is not enough to stop a tax system putting profits before people.
The G20, representing more than 80 per cent of the global economy, could also do more to tear down the walls of secrecy that allow companies to hide from their tax obligations, and ensure companies are paying their way, rather than sucking billions out of rich and poor economies alike.
The G20 must go further by agreeing that all multinational companies should report their profits and tax payments to governments, supporting an automatic system for the exchange of tax information by 2015, and putting an end to phantom companies by making sure company ownership can no longer be a secret.
The stakes are high. Global aid is falling for the first time in 15 years yet, despite recent progress, one in eight of the world’s population goes to bed hungry and many more live in poverty. Leaders in St Petersburg have the chance to send a clear signal that they are no longer willing to tolerate some of the world’s most profitable firms dodging their responsibilities to global society. They must grasp it.
Emma Seery is head of development finance at Oxfam
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