Wednesday, June 08, 2011

Letter from America: ‘We don’t care how much tax we pay, as long as you tell us how much it is, let us pay it and leave us alone’

By David McNair, guest blogger:

Perhaps not what you might expect to hear from the head of tax from a major global bank. But as the most influential tax professionals from across America gathered in DC to discuss the latest developments in business taxation with the OECD, simplicity and certainty was the resounding call from business.

The OECD is looking for its place in the world – and it's pretty clear that the members of this rich countries' club are no longer the rich ones, and are clambering to pull in support from the emerging economies. With developing countries being mooted as having double digit growth potential, while the pole position for Africa and Latin America’s largest trading partner has been lost to China, the OECD is looking beyond its borders to restore its raison d’etre. Tax and development is a key piece in this game.

So as we expounded the virtues of tax: the development potential; the business case; and the ethics -- the argument for strong international standards came not, as you might expect from the non-governmental organisations (NGOs) but from the tax director of BP. It’s clear that Dodd Frank (US legislation requiring oil gas and mining companies to disclose payments to governments on a country by country basis) is now accepted by business, and they want international standards that ensure a level playing field.

Of course there are some issues to iron out, such as countries where business operations depend on secrecy agreements – notably, Angola, Qatar, and Cameroon. But in contrast to Shell’s Peter Voser, who suggested this was an argument against mandatory transparency standards, BP’s argument was much more reasonable; that it is unfair to expect business to sort out these inconsistencies, and rather, governments should be using diplomatic engagement to sort it out.

And what of multinational tax avoidance? In a room full of multinationals, tax lawyers and planners, no one denied that it happens. But in developing countries, they were clear that they wouldn’t mind paying more to buy their way out of hassle; whether that be reputational risk, disputes in court, bad relationships with government, or unexpected bills.

And here lies a question for the OECD’s work on tax and development.

Transfer Pricing is perhaps the most complex area of international tax. With Joe Guttentag, the veteran US treasury official who originally took transfer pricing to the OECD in the 60s, not convinced that it is the best approach for developing countries, will the OECD look at ways of simplifying the administrative burden? It could provide countries with revenue which the companies don’t mind paying in return for a bit of certainty. OECD countries may have to give up some of their taxing rights to developing countries, but if the OECD wants a slice of that double digit growth I mentioned earlier, it might be a price worth paying.

David McNair is Senior Economic Justice Adviser at Christian Aid

TJN adds: For all its many faults, BP seems to have some form in terms of progressive thinking on tax and transparency. Today's blogger wrote the first newspaper article on BP's landmark decision in 2001 to publish unprecedented detail about its Angolan operations, leading to serious threats from Angolan state oil company Sonangol. Since the article is over 10 years old, we feel the Financial Times is unlikely to complain about our reproducing most of it - it was an important historical landmark in the global debate on the transparency of extractive industries. And credit where it is due.
BP to give details of Angola operations
By Nicholas Shaxson
Published: February 11 2001 18:16GMT | Last Updated: February 12 2001 15:24GMT

BP is preparing to publish new information about its operations in Angola, revealing production figures and payments made in the oil-rich country.

The unprecedented move is likely to raise hackles in the Luanda government but has been welcomed by non-governmental organisations (NGOs) critical of secrecy which has encouraged large-scale corruption in Angola's fast-growing oil industry.

In a letter to London-based advocacy group Global Witness, BP promised to publish details annually about its net production, aggregate payments to Angolan state oil company Sonangol, and taxes and levies paid to the government.

BP, whose first oil in Angola will flow later this year from a stake in the giant deep-water Girassol field, appears to believe it can publish this data without breaking contractual confidentiality agreements.

The latest move follows a secret meeting in November chaired in London by Peter Hain, UK foreign office minister at the time, in which oil companies including ExxonMobil, BP, Shell and Chevron were asked by NGOs to publish their various payments to Angola.

The spotlight has fallen on Angola's oil industry recently, partly due to alleged links to arms and corruption scandals in France involving former state oil company Elf Aquitaine. A senior UN official, Ibrahim Gambari, also said last week he wanted oil companies to get involved in new efforts in Angola to raise transparency and try to help resolve a long-running civil war with Jonas Savimbi's UNITA rebels.

A "diagnostic study" of Angola's opaque oil sector by the consulting arm of KPMG launched in January under an ongoing IMF-monitored economic reform programme is already generating substantial new information, and some oil officials argue this is the best channel to pursue better transparency.

However, flows of information from this study, already criticised for its limited scope by organisations such as US-based Human Rights Watch, is controlled by the Angolan authorities, which have gone back on various reform commitments in the past decade.

NGO officials said they eventually want to see wider disclosure pushed beyond the oil industry to other businesses such as banks involved in billions of dollars of secretive oil-backed loans, and also beyond Angola's borders, though none of those that were contacted said they have clear plans how to proceed yet.


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