Criticism against the OECD's BEPS Action Plan to fight tax avoidance and evasion has widened the battle for tax transparency.
A report, published on August 4 by the UK All Party Parliamentary Group (APPG) on responsible tax, said the OECD's action plan to tackle base erosion and profit shifting (BEPS) "will fall short of creating the fair and transparent global system that is needed to tackle global tax avoidance".
The APPG described the global tax rules as a "sticking plaster on an international system struggling to cope with a digitisation and globalisation of businesses".
The issue has been stirred by further revelations by the International Consortium of Investigative Journalists (ICIJ), which published a second set of information from the Panama Papers scandal in July.
APPG Chair and UK Labour MP Margaret Hodge acknowledged that the OECD has done well to build a consensus about tax fraud but that it is likely to fail in meeting its challenge to combat tax fraud. Instead, it will create more complexities in the international tax system, she said.
"We need to open up the affairs of global companies to public account if we are to clean up the widespread abuse that pervades so many international businesses. Only when we know who owns what, where the assets are owned, where the money is earned and what tax has been paid, can we have confidence in the fairness and integrity of the tax system," Hodge said. "The new rules add to an already complicated tax system. Corporations, aided by an army of advisers, banks and lawyers, can exploit these rules to avoid paying tax where value is genuinely created. This, could further undermine public trust in the tax system."
OECD supports secrecy
The APPG report stressed that more work needs to be done to restore public confidence in the fairness and integrity of the tax system. It states that by failing to secure public country-by-country reporting (CbCR), the OECD has "missed a real opportunity to open up the tax system". It goes on to stress that a corporate entities' business is of public interest and that by adopting public registries, developing countries will benefit especially.
Tove Maria Ryding, tax justice coordinator at the European Network on Debt and Development (Eurodad) told International Tax Review that "one of the problematic guidelines from BEPS states that what multinational corporations pay in taxes and where they do their business should remain secret". "Luckily, this guideline was not going to be adhered to, because prior to BEPS we already had examples of companies bound by law to publish such information. It is sad that the OECD ended up arguing against transparency," said Ryding.
Eurodad's Ryding added that BEPS has failed to create transparency around sweetheart tax deals. She said that these deals are what allows multinationals to reduce their tax bill to below 1%. "That's is obviously something the public has a strong interest in knowing," she added.
"As we saw in LuxLeaks, some governments are trying to attract companies by offering even sweeter deals and even lower tax payments in a very tragic race to the bottom," said Ryding. "If we had clear rules spelling out what multinational corporations should pay in taxes, there wouldn't be any space for secret deals. But instead of solving these problems, BEPS became an attempt to paper over them."
David Bradbury, head of the OECD's tax policy and statistics division, told International Tax Review that the BEPS project "is the most significant reform of the international tax system in a century. It aims to reduce tax avoidance by multinational enterprises which is conservatively estimated to cost governments around the world almost a quarter of a trillion US dollars in revenue each year. The key to its continued success will be to implement the recommended measures in a consistent and coordinated way".
APPG recommendations
The APPG, which was set up in September 2015 to build and maintain a fair and transparent tax system in the UK, issued the following recommendations in its report:
The UK government should introduce public CbCR and push for a multilateral implementation basis;
The UK government should use its statutory influence to compel overseas territories to adopt public registries of beneficial ownership;
The UK government's tax authority, HM Revenue and Customs (HMRC), should provide annual assessments of international spill overs from UK tax that explain corporate tax policy and new tax incentives impact;
National governments should collectively prevent companies exploiting loopholes;
The OECD should strictly monitor the implementation of BEPS and make the data publicly available;
The G20 countries should work with the OECD to conduct a thorough review of the corporate tax system; and
There should be a mechanism to involve developing countries in this review.
Toby Quantrill, principal adviser on economic justice at Christian Aid, described the report as a gift to UK Prime Minister Theresa May's government. "Every tax scandal leads to promises of a crackdown, but the last government rarely matched words with action," said Quantrill. "As the report states, David Cameron's government made some very positive changes in the UK such as introducing a public register of beneficial ownership, but on other issues lobbied behind the scenes against positive change. Theresa May's government must prove it takes this issue seriously by adopting the proposals in [the] report in full, and following through with determination."
Hodge scrutinised the UK government's effort on BEPS, which has been considered "a difficult friend" of the process. She said "the government has been facing both ways" on this issue and has called on the Prime Minister to put an end to tax secrecy. "While publicly proclaiming their determination to tackle global tax avoidance, they have been encouraging these practices by changes they have made to the UK tax system and by refusing privately to agree to some key OECD proposals," Hodge said.
"These rules will not work properly until tax secrecy is swept away," Quantrill said Theresa May's new government should take the lead in ensuring this happens, rather than following others. This is particularly important as the most popular tax haven listed in the Panama Papers is the British-run British Virgin Islands."
Under Theresa May's tax plans, "the government will build on progress made from the last parliament to tackle avoidance and aggressive tax planning, and ensure a level playing field," said a document sent by the UK Treasury to International Tax Review. "A package of measures to tackle avoidance by multinationals will raise around £8 billion ($10.4 billion) over the next five years, through measures on interest deductibility, hybrid mismatches, offshore property developers and royalty payments."
Second release of Panama Papers creates stir
The issue of tackling tax fraud is unlikely to go away any time soon. The ICIJ, a global network of investigative journalists, released a second batch of information on July 25 from the Panama Papers scandal, which investigated the use of offshore bank accounts that enabled wealthy individuals and multinationals to evade taxes. It published "fresh details about the misuse of corporate secrecy and hidden wealth in Africa" that focused on businessmen in Nigeria, Kenya, Namibia, Egypt and Algeria.
This second release has strengthened the need for tax transparency in developing countries with cross-border bribery scandals being a common case in Africa. Companies created or administered by Mossack Fonseca, the Panama law firm that was directly involved in aiding dodgy tax deals, were found to have played a key role in the African oil, gas and mining deals, according to the ICIJ. The ICIJ identified 37 companies within the Panama Papers that were named in court actions or government investigations involving natural resources in Africa. The ICIJ worked with a number of African networks and local reporters to secure the information for their investigation, including AllAfrica, a news and information website based in Cape Town.
These findings have stirred public perceptions of tax dodging, corruption, environmental destruction and fraud.
The fight to increase tax transparency and strengthen international rules on tax dodging has recruited numerous individuals, organisations and governments. The APPG's recommendations to the UK and national governments provides a fresh call for action.
