Monday, September 29, 2008

Britain's Doha disgrace

This story, uncovered by the Tax Justice Network, is in Britain's Observer newspaper:

"The British government is attempting to torpedo a section of an international plan to eradicate tax evasion in a move that has sparked widespread condemnation.

The Observer has established that the UK is lobbying to remove paragraph 10 from the draft Doha Outcome Document. The document, which is scheduled to be ratified in November, is the most important element in the international process intended to help developing countries wean themselves off aid and establish sustainable economies."

World leaders are due to meet in Doha, Qatar from November 29-Dec 2 this year to try to help figure out ways to finance development. It is a crucial event - read more here. The US, Canada and Australia are also opposed to the paragraph in the draft outcome document, according to sources in the UN. As currently drafted, it reads:

"We will strengthen efforts to increase tax revenues through more effective tax collection and modernization of tax legislation including through simplification of the tax system, broadening of the tax base, and strongly combating tax evasion. To support individual country efforts in these areas, it will be important to enhance international cooperation in tax matters and broaden participation in the development of international tax norms and rules. We will consider strengthening the UN Committee of Experts on International Cooperation on Tax Matters by upgrading it to an intergovernmental body."

It would seem extraordinary that any government could object to the the first two sentences at any time, let alone right now. Given Gordon Brown’s claimed commitment to Africa, you might have thought he was promoting this clause. But no, the Treasury is blocking the whole paragraph. It told the Observer:

"The UK makes an active contribution to the existing UN tax committee. It is not clear that an upgrade to the existing committee … would deliver any additional benefit."

Why is this important? Let's refer to an earlier blog of ours, which said this:

"The only other forum for international discussion of tax matters is the OECD, a rich countries' club, which has adopted a timid approach to international information exchange. THe OECD's harmful tax competition initiative, launched ten years ago in 1998 at the behest of the G-7 group of industrialised countries, foundered after support was withdrawn by the administration of George W. Bush in 2001, and its focus on information exchange by request is too feeble to be effective. The same can be said of its transfer pricing rules, which are not working at all well. What is more, the OECD and the UN adopt different approaches to the issue of source-based and residence-based taxation (see here for more details) with the OECD model less favourable to poor countries than the UN approach. If the UN is to start pushing properly for appropriate tax practices in development, it must upgrade its Tax Committee as a first step."


Let's contrast these countries' positions with a communiqué put out recently by a group of high-level African tax officials. It's well worth reading in full, but here is an extract from a significant section:

"We believe that taxation is essential to sustainable development. Developed and developing economies, NGOs, private investors and international organizations should work together to promote fair and efficient tax systems and administrations that will ensure each country receives the fruits of its own economic achievement and, at the same time, improves its overall governance.

We agree that one of the most pressing issues facing our continent is to embark on a path to free African countries from their dependence on foreign assistance and indebtedness. An indispensable condition of this is the strengthening of our capacity to mobilize domestic resources. Domestic revenue should be one of the main sources for fiscal space expansion because of its sustainability, thereby reducing dependence on donor assistance.

We are concerned at the international findings on the issues of tax havens and capital flight. Billions of dollars per year have left the African continent between 1991 and 2004. These outflows are estimated at 7.6% of the annual GDP of the region and, in effect, makes African countries net creditors of donor countries. They also undermine African countries’ tax bases. While developed countries are providing ODA and some debt relief on the one hand, action by the international community is required to ensure that the potential tax base of developing countries is not undermined through tax evasion. We encourage the UN and the OECD to vigorously pursue their work in this area by promoting better international cooperation.

We are well aware that many African countries, like most countries globally, face significant challenges in respect of the effectiveness of their tax systems. Overall revenue yields and voluntary compliance are low; the tax bases often remain narrow, while the informal sector continues to grow; the taxation of international transactions, in particular transfer pricing, has become increasingly difficult; the overall tax gap remains unquantified.

We recognise that, over the coming decade, we will need to enlarge our sources of tax revenues and broaden the tax base considerably, in order to compensate for the move away from trade taxes resulting from WTO obligations and from regional trade agreements."

John Christensen, director of Tax Justice Network, said:

"The European Parliament last week made a strong statement demanding the commission support this document. Britain is out on a limb within Europe. It's the usual suspects of the US, UK, Australia and Canada. These are the countries that created the toxic financial crisis undermining the global economy. Seemingly lessons have not been learnt."

We'll leave the last word to Richard Murphy, who puts this into perspective:

"Remember, this whole issue is about raising the cash needed to meet the Millennium Development Goals. This is about helping developing countries build sustainable tax systems. Giving them access to the information they need to ensure that the cash due to them by multinational companies in particular is paid. It’s about ensuring that they are not abused by tax haven structures. It’s about ensuring higher status is given to the UN tax committee, which is the only place where countries from outside the OECD (and that’s most by far) get any say on international tax.

But the UK is saying no to all of that. It’s saying these countries can’t have a say. It’s saying they can’t have the information they need to collect tax, and that the status quo that leaves them exploited and aid dependent should be maintained. It’s about saying cash should not be raised to fulfil the MDGs. It’s about saying these countries should not be encouraged to build fair, open and accountable tax systems.

It’s more pernicious still. In reality it’s about saying that the UK’s tax havens are more important than developing countries; that our multinationals should be allowed to continue their abuse of developing countries and that accountants, lawyers and bankers should still be allowed to set up the abusive offshore structures that facilitate the corruption that plagues these countries, because let me assure you - none of that corruption would happen without the assistance of those banks, lawyers and accountants.

This is about choice: choice about whether to support developing countries, choice about ending poverty, choice about fairness, choice about equal treatment, choice about respecting democracy. Or choice to support abuse, corruption, the maintenance of unlevel playing field in which developing countries are given no chance and have no hope."

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