Europe wakes up to the power of tax against poverty

From Christian Aid:

"Developing countries' urgent need to boost their tax revenues in order to fund schools, hospitals and the fight against poverty won welcome backing today from Europe, says Christian Aid.

'We're delighted to see that the European Commission has really woken up to the power of tax,' said Dr David McNair, Christian Aid's Senior Adviser, Economic Justice. 'It is highly significant that it has explicitly recognised poor countries' need for higher tax revenues in order to achieve Millennium Development Goals such as halving extreme poverty and hunger and reducing child mortality.

'The Commission has also made the crucial link between countries having successful, fair tax systems and the strength of their democracy and efforts against corruption.'

The Commission's latest stance on tax and poverty emerged today in its new Communication on tax and development, which will be the basis of European Union governments' contribution to the United Nations major review, in September, of global progress towards the Millennium Development Goals. The Communication states that in future, the EU's aid commitments will also include agreements on raising tax revenue more effectively in developing countries.

Christian Aid also warmly welcomes the Commission's acknowledgement of the importance of a new accounting standard requiring multinational companies to reveal the taxes they pay and the profits they make in every country where they operate. The standard, known as country-by-country reporting, would dramatically boost poor countries' efforts against tax dodging by multinationals.

Developing countries' tax loses, which are estimated to be in excess of $160bn a year, hit public services and the people living in poverty who depend on them.

The Commission's support for Organisation for Economic Cooperation and Development work to include country-by-country reporting in its Guidelines for Multinational Enterprises increases the pressure on the OECD to deliver such a standard. However, while Christian Aid welcomes such a voluntary standard, a mandatory one is required to make real progress.

The Communication also supports the International Accounting Standards Board's (IASB) work on a binding international country-by-country reporting standard. This increases the pressure on the IASB, which has been desperately slow at producing such a standard.

Finally, the Communication implicitly recognises that the G20's current crackdown on tax haven secrecy needs to go further in order to benefit developing countries. We now have explicit statements from both the OECD and European Commission that the interntional community should explore Automatic Exchange of Tax Information to help developing countries challenge tax dodgers.

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For the EC communication on tax and development, click here.
For the EC working staff document on tax and development, click here.