International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

How tax could replace aid for developing countries


Speaking to International Tax Review, Pascal Saint-Amans, the incoming head of tax policy and administration at the OECD, highlighted the goal of replacing aid with tax collection. But what will it mean for taxpayers?

Whether through broadening bases or closing loopholes, tax collection in the 21st century will continue to grow in importance, especially if the OECD is to realise its goal of replacing aid for developing countries with tax revenue.

“In the future, tax will replace aid,” Saint-Amans told International Tax Review.

It is an ambitious goal, and one shared by development agencies, though with a little more caution and a few more caveats.

“ActionAid believes that aid as we know it – support to poor countries to deliver basic services and alleviate poverty – could end within a generation,” said Martin Hearson, policy adviser at ActionAid. “While most developing countries would no longer depend on aid to fund public services, it would still be necessary for, for example, humanitarian aid, disaster risk reduction and climate change adaptation.”

This is a position supported by David McNair, principal economic justice adviser at Christian Aid. While he sees replacing aid with tax as a worthy long-term goal, and wants developing countries to be self-sustaining through tax revenue, he notes the “huge challenges for them to collect revenue”.

“Where the OECD can make a difference is looking at ways in which global tax rules are weighted against poor countries,” said McNair. “The Global Forum has made progress. But we need to pursue automatic information exchange.”

McNair believes OECD guidelines are too complex for developing countries and ways of simplifying them need to be looked at, along with alternatives to the arm’s-length principle such as fixed margins.

“If we get things right, tax revenue could provide the lion’s share of public revenue in the vast majority of developing countries, as it does already if you look at the African continent as a whole,” said Hearson. “Stronger tax policy and administration is an essential prerequisite for this, but it won’t be enough, unless it is accompanied by strong, inclusive and equitable economic growth.”

Hearson says that there is a big demand for capacity building on tax, including international tax, from developing countries.

“We welcome efforts by donors and international organisations to support them,” said Hearson. “But it is essential that we learn the lessons of decades of technical assistance in other areas of public administration.”

Capacity building will likely mean a greater tax bill for companies, but Hearson stresses that it will also lead to more efficient and certain relationships with authorities.

“We welcome the private sector’s interest, and we sympathise with businesses whose compliance burden is increased by the lack of administrative capacity in developing countries,” said Hearson. “Of course all stakeholders need to be engaged in the development of tax policy and administration, but this must be done in a way that safeguards the independence, neutrality and confidentiality of tax policymaking and administration.”

Hearson notes that one objective of strengthening policy and administration in developing countries is to reduce compliance costs for multinational businesses.

“Another is to raise more tax revenue by protecting source taxation and more effectively preventing tax avoidance,” said Hearson. “Businesses must therefore recognise that in many cases an indicator of success is likely to be a higher effective tax rate for them.”

McNair welcomes the participation of BIAC, the business advisory arm of the OECD, in providing advice and expertise to developing countries on transfer pricing and stressed the need for companies to look at tax as a corporate social responsibility (CSR) issue.

“Companies should be looking at tax as a CSR (corporate social responsibility) issue from a boardroom level,” said McNair.

If tax is to replace aid for developing countries, it will be important for NGOs to not only point the finger at wrongdoing and avoidance, but to convince companies that it is in their best interests to pay their fair share of taxes and to support poorer nations in capacity building.

For the full interview with Saint-Amans, read the February edition of International Tax Review.

more across site & bottom lb ros

More from across our site

The European Commission wanted to make an example of US companies like Apple, but its crusade against ‘sweetheart’ tax rulings may be derailed at the CJEU.
The OECD has announced that a TP training programme is about to conclude in West Africa, a region that has been plagued by mispricing activities for a number of years.
Richard Murphy and Andrew Baker make the case for tax transparency as a public good and how key principles should lead to a better tax system.
‘Go on leave, effective immediately’, PwC has told nine partners in the latest development in the firm’s ongoing tax scandal.
The forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.
The working paper suggested a new framework for boosting effective carbon rates and reducing the inconsistency of climate policy.
UAE firm Virtuzone launches ‘TaxGPT’, claiming it is the first AI-powered tax tool, while the Australian police faces claims of a conflict of interest over its PwC audit contract.
The US technology company is defending its past Irish tax arrangements at the CJEU in a final showdown that could have major political repercussions.
ITR’s Indirect Tax Forum heard that Italy’s VAT investigation into Meta has the potential to set new and expensive tax principles that would likely be adopted around the world
Police are now investigating the leak of confidential tax information by a former PwC partner at the request of the Australian government.