How the G20 is tackling tax secrecy

November 14 2011

David McNair, principal economic justice adviser at Christian Aid, London, analyses how well G20 countries are living up to their 2009 commitments to support poor countries’ tax collection and crack down on tax haven secrecy.

With the global economy reeling from the 2008 financial crisis, the G20’s 2009 London summit meeting seemed determined to take decisive action against tax haven secrecy. But two years on, has the G20 lived up to its commitments on tax haven secrecy and support developing countries on tax?

To help answer these questions, Christian Aid studied the latest expert advice the G20 commissioned from international organisations such as the World Bank, IMF and OECD, on how to live up to its 2009 commitments to help poor countries collect the tax they are owed.

We then came up with the following scorecard, which compares the experts’ advice with what the G20 actually delivered this month in Cannes, along with comments by Christian Aid.

Our overall conclusion is that the G20’s welcome political commitment has been translated to decisive action on only one of 12 actions suggested by the international organisations’ experts, while some tentative progress has been made on only three other issues.

(The statements in the dark grey boxes on the left of the table are the international organisations’ suggestions about what the G20 Cannes’ communiqué should say on each issue. Below them are the international organisations’ suggestions about how each political commitment should be implemented.)

What international organisations suggested G20 should say about tax and development	Christian Aid comment on international organisations' suggestions	G20 response to the international organisations' suggestions
We commit to deepening international cooperation and strengthening long term support to developing countries to help them mobilise domestic tax resources fairly and effectively, as the cornerstone of statebuilding, social inclusiveness and better governance.
Review the level of our assistance dedicated to supporting poor countries' tax systems.	Developing countries desperately need extra help with tax collection, including concrete financial commitments.	Strong support for capacity building for tax administrations. But no financial commitments or specific action plans are in place.
Analyse the impact of significant changes in G20 tax systems on developing countries. Support work to counter tax dodging in developing countries.	Such analysis is vital. The report cites as an example the move from worldwide to territorial tax systems, such as the UK's changes to its controlled-foreign company rules.	No recommendation or action.
Share our efforts to identify, quantify and make more transparent tax expenditures. Ask international organisations to develop a way to assess costs & benefits of special tax treatments – and guidance for countries using tax incentives to attract FDI.	Poor countries often face corporate demands for tax incentives. Often these don't benefit the countries concerned. This analysis would give countries the information they need to stand up to companies.	No recommendation or action.
Make transparent our tax exemptions on goods and services funded by aid; encourage other donors to follow.	Leading by example to ensure transparency in the tax treatment of aid is strongly welcomed.	No recommendation or action.
Within our aid programmes for poor countries, work to ensure taxation promotes state-building, government accountability and equity between citizens. Encourage other donors to do likewise.	Increased tax revenue will only deliver for poor people if it is used to provide public services and increase prosperity.	No recommendation or action.
We will require multinational enterprises to improve tax transparency and compliance in developing countries and place good tax compliance more firmly at the centre of their corporate governance and risk assessment systems.
Promote the Multilateral Convention on Administrative Assistance in Tax Matters; support spontaneous information sharing in international tax fraud cases and include anti-treaty-shopping provisions in our tax treaties with developing countries.	NGOs have long supported a multilateral convention on automatic information exchange. This is a welcome advance but we need pressure for tax havens to sign, and to know the convention works before developing countries commit resources to it. It currently has many loopholes.	The multilateral convention has been agreed by G20 states. Other jurisdictions have been strongly invited to sign but no significant pressure put on tax havens. The G20 did not mention spontaneous exchange of information, or their double taxation treaty policy towards developing countries.
Request international organisations advise G20 on transparency in MNEs' operations in developing countries, taking into account the debate on country-by-country reporting, business best practice and legal developments such as Dodd Frank in the US.	Multinational transparency is crucial. The call for investigation of country-by-country reporting is welcome. A call from the G20 to the IASB to implement country-by-country reporting would be a crucial step towards tax transparency.	Only a vague reference, encouraging G20 members to explore “voluntary standards on the disclosure of payments to governments by MNEs.”
Strongly encourage MNEs to provide necessary information to developing countries where they operate; apply domestic rules to ensure profits are not artificially shifted out of particular countries.	MNEs should be more transparent about their operations and more responsible in their tax strategies. MNEs should be obliged to reveal all subsidiaries and their locations, to help tax administrations control transfer pricing.	The G20 urge multinational enterprises to improve transparency and be in full compliance with applicable tax laws.
Urge international organisations and other donors to do more to help poor countries implement transfer pricing rules.	Many developing countries have sought help on transfer pricing. This call needs to respect developing countries' needs, not force on them standards designed by and for OECD countries.	The G20 welcome initiatives to help developing countries with drafting and implementation of transfer pricing laws.
We commit to working with developing countries to track results from their own revenue raising efforts and the efforts of their international partners.
Encourage international organisations to map assistance programmes and develop dedicated knowledge-management platforms.	This would help coordination in line with the Paris principles on aid effectiveness.	No recommendation or action.
Share benchmarking of our tax administration performance and structure; develop indicators of capacity improvement in tax-collection.	Benchmarking can be helpful but must not become a form of harmful conditionality, restricting poor countries' ability to set their own tax policies.	No recommendation or action.
Urge international and regional organisations to improve the quality and consistency of statistics on developing countries' tax systems.	To design effective tax policy, researchers need quality information. NGOs have long wanted international organisations to share data with researchers.	No recommendation or action.