Readhead is a new entry this year
Alexandra Readhead's work focuses on issues of tax avoidance
and other forms of illicit financial flows by multinational
extractive companies in developing countries. Readhead has
directly assisted governments in Sierra Leone, Guinea, Ghana,
Tanzania, Zambia, and Cote d'Ivoire on strengthening legal
frameworks against abusive transfer pricing in the mining
sector. She is technical adviser to the Intergovernmental Forum
on Mining, Metals and Sustainable Development (IGF) on its
programme 'Tax Base Erosion and Profit Shifting in the Mining
Sector in Developing Countries'.
The IGF BEPS in mining programme is a two-year collaboration
with the OECD Centre for Tax Policy and Administration to equip
the tax authorities of resource-rich developing countries with
policy guidance and practical tools to confront aggressive tax
planning by mining multinationals.
In 2017, Readhead also published the Toolkit for Transfer
Pricing Risk Assessment in the African Mining Industry. The
toolkit is the result of collaboration between GIZ and the
African Tax Administration Forum (ATAF) aimed at helping tax
authorities identify and detect transfer pricing risks in the
mining sector. The government of Cote d'Ivoire is already using
the toolkit in tax audits in the mining sector.
Over the coming year, she will build on the achievements of
2017 and continue to coach tax authorities on transfer pricing
in Guinea, Sierra Leone, Liberia, South Africa, Tanzania,
Senegal and Zambia, and publish new research on comparing
anti-avoidance measures in oil and gas, and mining.
International Tax Review: Where are the challenges for tax
administrations attempting to broaden their tax base and
balancing these efforts with accommodating private sector
Alexandra Readhead: Developing countries
desperately need investment to contribute jobs and revenue.
But, to attract this investment, they may need to offer tax
incentives to compensate for a lack of infrastructure,
administrative capacity and stable government. While these
trade-offs may be necessary, the challenge is to make the right
one. In Cote d'Ivoire, research by OpenOil into the Yaoure gold
mine has shown the investor's internal rate of return was
already very high compared to other gold mines, in which case
the five-year tax holiday was probably unnecessary. Meanwhile
the holiday cost government $120 million in tax revenue.
Navigating the trade-offs involved in attracting investment is
Part of the work I am doing with the IGF is to inform these
compromises in resource-rich developing countries by helping
governments get a better sense of the potential cost of tax
incentives, including the ways investors may use incentives to
maximise the tax benefit beyond what was anticipated by
government. Investors should also consider the political
sustainability of the demands they place on governments. Recent
events in Tanzania have shown that overly generous tax
incentives may come back to bite investors.
ITR: Do you think institutional efforts to close loopholes
for tax avoidance have taken on a quicker pace this year? Are
goalposts moving fast enough or too fast?
AR: There continues to be a huge amount of
activity at the international level and among developing
countries to close loopholes for tax avoidance. Between 1995
and 2014, the number of African countries with transfer pricing
rules has grown by 600%, according to EY. They are developing
standalone transfer pricing regulations, building specific
expertise, setting up specialised transfer pricing units and
working together to share best practices through ATAF.
However, there remains a question as to whether the
goalposts are the right ones, and whose interests they favour.
This is clear from the recent OECD BEPS deliberations, which
were limited to developed countries, which are now binding
developing countries to the new international tax standards
through the inclusive framework. Some aspects of the new
standards are helpful to developing countries, for example,
country-by-country reporting. However, given they are
particularly exposed to multinational tax avoidance due to
their disproportionate reliance on corporate income tax as a
major source of tax revenue, and have limited financial and
human resource to implement complex rules, there is a strong
argument for simpler legal and institutional 'goalposts' that
developing countries can inform and enforce. In mining this
might include using index prices to calculate sales revenue for
income tax, or setting limits on deductions for common cost
categories. Neither measure is arm's length, but might be
justifiable given the administrative challenges facing
developing countries. The goalposts are moving quickly, the
question is whether they will get developing countries where
they need to go.