Thursday, November 27, 2008

Return of the cavalry: OECD attacks tax havens

We have criticised the OECD on many occasions in the past. But it has also done, or tried to do, many good things in the fight for better tax co-operation - though their best efforts have so often been eviscerated by the tax haven lobbyists and, above all, by the U.S. administration of George W. Bush.

If we were making a Western shoot-em-up movie, with baddies in black hats and the forces of good in the white hats, we'd cast the OECD as a flawed character, who loves to hobnob with the rich folk in town but nevertheless wears a white hat.

Angel Gurría is secretary general of the Organisation for Economic Cooperation and Development (OECD.) He has just written an article in The Guardian newspaper, which puts him squarely in the white hat brigade. This is surely a sign that the election victory of Barack Obama has given great courage to the OECD to re-join battle against "harmful tax competition," after being almost entirely sidelined during the last eight years.

His article is well timed too: it comes out just before the start of the summit meeting of world leaders in Doha, Qatar, from November 29.

In fact, we like Gurría's article so much that we will reproduce it in full in this blog (we hope The Guardian won't mind.) Still, we do have some criticisms of the article. Read it first, and we'll comment more, underneath.

The global dodgers
Commitment to aid flows must be combined with a crackdown on tax havens, and Britain can do more

* Angel Gurría
* The Guardian, Thursday November 27 2008

The global economic slowdown will hit the poorest nations hardest. Demand for their exports is falling. Prices of raw materials are plunging. Flows of money from migrant workers to families back home will shrink as unemployment rises elsewhere. In these circumstances it is more important than ever that rich countries deliver on aid promises. That is why the OECD has called on the world's main donors to join an Aid Pledge to stick by their commitments.

As world leaders head to Doha for a UN meeting on financing for development this Saturday, however, another dimension of the issue needs urgent attention: tax systems.

Efficient tax systems underpin development. Rich countries rely on taxes to finance aid flows. In developing countries, locally generated taxes are a much bigger source of development finance than aid. Effective tax systems, based on cooperative relationships between governments, businesses and individuals, are a bedrock for democracy and growth. When businesses and citizens form part of the formal economy, good tax administration can provide for pensions, social security payments and other instruments of the modern state.

But there's a dark side. Tax dodgers in developed and developing countries deprive governments of revenues. Many take advantage of the lack of transparency in tax havens. Developing countries are estimated to lose to tax havens almost three times what they get from developed countries in aid. If taxes on assets hidden by tax dodgers were collected in their owners' jurisdictions, billions of dollars could become available for financing development.

Fighting tax evasion calls for cooperation between developed and developing countries. At home governments must enact fair and effective policies and make it easy for taxpayers to comply with their obligations. Internationally, they must push for greater transparency in cross-border financial transactions.

As incoming G20 chair, Britain must take up this challenge. It has played a lead role in OECD work on countering tax haven abuse, but more is needed. Ties with Commonwealth countries and dependencies that operate as offshore financial centres make it uniquely well placed to push for improved standards of transparency. At the same time, it can give a lead in helping developing countries improve their tax administration.

We need to be realistic. Developing countries often lack the resources to build effective tax systems. Citizens may be unwilling to pay on the grounds that governments misuse the funds. It can be difficult to implement fair taxation in low-income, agrarian economies. And the poor are often subject to an equivalent of tax, in bribes and informal fees.

But something can be done. The OECD's decade-long drive against tax havens and evasion is bearing fruit in the form of bilateral treaties aimed at improving transparency and exchange of information. The trend is spreading beyond the OECD, with China and South Africa joining this campaign. At the same time, donor countries are helping poorer nations develop fair tax services.

Significantly, developing countries are joining forces too. An African Tax Administration Forum is being developed under the leadership of Botswana, Cameroon, Ghana, Nigeria, Rwanda, South Africa and Uganda. By inviting governments to share good practices, it aims to improve service delivery and taxpayer education. Success will increase accountability, strengthen democracy and combat corruption.

In 2006, only $88m of a total $103bn in official development assistance from OECD countries was dedicated to tax-related tasks. But aid targeted at capacity building in revenue administrations is money well spent. Donor support to the Rwanda Revenue Authority brought a dramatic increase in tax revenue, from 9% of GDP in 1998 to 14.7% in 2005, with an equally significant effect on state accountability. We cannot allow the crisis to undermine such efforts.

The last time we faced a major global downturn, aid budgets fell dramatically - curtailing investment in agriculture, infrastructure, social welfare and political stability. Similar cuts now would be even more damaging, after volatility in commodity prices and a global food crisis have already hit the poor. Cuts may bring short-term savings to donor governments, but they would cost much more in the longer term in extra spending on security and humanitarian aid.

Earlier this week, OECD donors joined in an Aid Pledge to maintain aid flows consistent with promises at Gleneagles and elsewhere. If combined with a joint effort to fight tax evasion, the results for development could be significant. The OECD, as the leading international organisation with a mandate to work on tax policy, is committed to this objective. More effective tax systems in developed and developing countries would help to build a stronger, cleaner and fairer world economy. And they would help the poorest the most.

Here are our points of discord.

First, his assertion that Britain "has played a lead role in OECD work on countering tax haven abuse" is plain wrong. See here, for example. Britain, hosting perhaps the world's biggest tax haven in the City of London, and pimping the biggest network of tax havens in the Crown Dependencies and Overseas Territories, wears a jet-black hat in this area.

Second, he has not mentioned the UN Tax Committee. This is of fundamental importance in the forthcoming Doha event. We explain why here.

Third, a sentence near the end of his article jars with us:

"The OECD, as the leading international organisation with a mandate to work on tax policy, is committed to this objective."

He seems to be saying: we are the top dogs, and leave it to us.

Not so fast. There are two big multilateral organisations with the mandate to tackle this. The OECD is one. The other is the United Nations. The OECD is a club of rich countries. The UN represents, to a far more substantial degree, the developing world. It is time now for the UN to step up to the plate. As we've noted, a first step is this: build up the UN Tax Committee, so that it starts to punch its weight.

Fourth, we object to this sentence:

"The OECD's decade-long drive against tax havens and evasion is bearing fruit in the form of bilateral treaties aimed at improving transparency and exchange of information."

The bilateral treaties that the OECD encourages, especially in their current form which only allow for information to be obtained "on request" (that is, you can only get the information once you are looking for it), are utterly feeble; pathetic, in fact. The answer is automatic exchange of information on a multilateral basis.

Has the cavalry arrived? So far, so good. And we have just seen skirmishing so far. Let's not forget: the black hats are out there, in great force. They are dangerous, well-organised, and armed to the teeth.

Final point: please go to the Guardian article, and post your comments underneath.


Anonymous Anonymous said...

Congratulations! - Neither Marx nor Lenin themselves would have written it differently than you have. Thanks Comrades for your support! It is, indeed, good to know that there are still some among us who hold that private property is theft, should be abolished, and its adherents left without succor anywhere in the world - no matter how remote.

Thank you for the service you are providing to that end.

7:19 pm  

Post a Comment

<< Home