I’ve quoted the declaration in full below because I think it is an important document. I also think it reflects how far we have travelled in a couple of years based on my participation in the Tax and Development Taskforce at the OECD. In discussions with ngos over the last week, it is clear that they feel this is a major step forward – so business and advisers need to take this seriously. It is also fascinating that the 10 point plan has actions for both taxpayers and governments.
Private enterprise drives growth, reduces poverty, and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this. We will make a real difference by doing the following:
1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion.
2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.
3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.
4. Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.
5. Extractive companies should report payments to all governments
– and governments should publish income from such companies.
6. Minerals should be sourced legitimately, not plundered from conflict zones.
7. Land transactions should be transparent, respecting the property rights of local communities.
8. Governments should roll back protectionism and agree new trade deals that boost jobs and growth worldwide.
9. Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries.
10. Governments should publish information on laws, budgets, spending,
So what are the key issues to address?
Automatic exchange of information is very important. We have seen the EC moving on this as well. At the G8 preparatory meeting there was discussion about a standard taxpayer identification number for all taxpayers including corporates and trusts. The EC is also considering this in a European context. It was described as a “fiscal passport” without which taxpayers shouldn’t be able to transact. These are big changes with the obvious target of evasion, but they would also have application in avoidance where taxpayers don’t provide information about group transactions. In this current climate it is likely that advisers who promote in this area will be subject to heavier scrutiny and it will be interesting how professional bodies respond.
Next, ” multinationals should report to tax authorities what tax they pay where”. This is not country by country reporting as Tax Justice Network propose but transparency with tax authorities. Corporates will not only have to provide the information but also, more importantly, be able to explain it and why their tax planning works. In addition, “Countries should change rules that let companies shift their profits across borders to avoid taxes”. This is the BEPS project and suggests that those who advised that it would have no teeth were in denial or misinformed. From a European perspective (and certainly from the UK) this had to be part of the outcome politically.
“Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.” This will mean that groups will have to be transparent about their corporate structures with tax administrations.
“Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them” At the TTT event on Saturday, it was very clear that everyone recognised the importance of capacity building. This means support from governments and multilateral organisations, Tax Inspectors without Borders. But it also needs Business to invest more in explaining its business models to developing countries, Reference was made to the work which Rio Tinto has done in this field with Colombia, Guinea and Mongolia. But these are lone examples and business needs to resource this area and do it swiftly as it was first proposed a year ago by OECD.
“Extractive companies should report payments to all governments.” What was interesting on Saturday, was that both Shell and Rio Tinto called for a level playing field for extractives wherever they are listed, they also indicated that transparency should apply to other sectors. My read of this is that corporates need to review their position on transparency and urgently. While information may go to tax authorities, there will still be pressure to make this public.