Taxation without Borders: A Fair Share from Multinationals

Profit shifting by multinationals is costing countries an estimated $240 billion in lost tax revenues annually, according to the OECD. The organization’s Global Forum on Transparency and Exchange of Information for Tax Purposes has, to date, attracted 138 members and brought $70 billion back into their coffers. By next September, there will be an automatic exchange of tax data. “The authorities will get the information”, said Angel Gurría, Secretary-General of the Organisation for Economic Co-operation and Development (OECD). “We will come down like a ton of bricks on any country that tries to be too smart – including the big economies,” he added.

However, the OECD’s measures do not go far enough, argued Winnie Byanyima, Executive Director of Oxfam International. She pointed to the human rights angle – Kenya, for example, is losing $1.1 billion per year in tax incentives and exemptions. That’s double the health budget in a country where 1 in 40 children die at birth. She questioned why developing countries are not at the table and called for a fundamental, global law on corporate tax reform that would tackle tax havens, address the “race to the bottom” on lowering corporate tax rates, and limit the ability of big business to lobby governments for special tax rates and exemptions.

Gurría pointed out that the OECD worked with Enda Kenny, Ireland’s prime minister, to dismantle the system that had permitted Apple to get away with paying virtually no tax. Meanwhile, the OECD has received assurances from the US that they will dismantle the notorious Delaware tax haven. However, he conceded that the OECD needs to start tackling the issue of beneficial ownership, whereby one company’s financial activities are hidden beneath the shell of another beneficial corporate entity.

Mateusz Morawiecki, Deputy Prime Minister and Minister of Economic Development and Finance of Poland, said his country loses about $10 billion a year from tax evasion. He pointed out that the three countries investing the most into the EU – the US, Switzerland and Bermuda – are the same three countries that receive the highest levels of investment from the EU. “If this isn’t a huge global tax evasion, I don’t what is,” he said. Poland has a vibrant SME sector, accounting for 65% of GDP; but tax evasion by multinationals is depriving the vast majority of local SMEs of a level playing field. “The richer countries are becoming richer, because most multinationals are there,” said Morawiecki. He called on the EU to act more quickly to address the problem.

In response, Valdis Dombrovskis, Vice-President and Commissioner for Euro and Social Dialogue, Financial Stability, Financial Services and Capital Markets Union at the European Commission, argued that the EU is at the forefront of initiatives against profit shifting and tax evasion, going further than the OECD in terms of information exchange and tackling bank secrecy and non-cooperative tax jurisdictions. His department has proposed that multinationals report country by country on how much tax they pay – but any EU proposal requires the unanimous support of member states to become effective. “We support the principle that corporation tax is paid where the activity takes place,” he said. In addition, Dombrovskis pointed out that the EU has unearthed 600 transfer pricing “sweet deals” and is looking at creating one standard corporate tax base to eliminate loopholes across all member states.

Turning to the issue of multinational’s lobbying power, Isabel de Saint Malo de Alvarado, Vice-President of Panama and Minister of Foreign Affairs, pointed to the injustice that multinationals insist on negotiating tax breaks in developing countries that indigenous companies do not enjoy. “We need to bring this analysis into the discussion,” she said. And it’s not just in the developing world, pointed out Oxfam’s Byanyima: big pharma spends $250 million a year lobbying Capitol Hill, mainly on tax issues. Saint Malo called for all countries to come to the table and discuss transitional arrangements leading to the creation of a single global taxation governing body. For her part, Byanyima called on big business “to do what’s right and not just do what’s legal.”