Levelling Up / 5Why the BEPS Project can’t solvedeveloping countries’ tax problemsThe BEPS Project has a mandate from the world’smost powerful governments, the member countries ofthe OECD and the G20. It sets out to address theproblem that multinationals have often been able toshift taxable income out of the countries where it isearned and into tax havens, where it is taxed lightly– if at all. But its recommendations cannot beexpected to address the major problems ofdeveloping countries in taxing multinationals because:• The BEPS Project embodies the assumptions ofthe rich countries that dominate the OECD and ithas only engaged with developing countriesoutside the G20 in a limited or belated fashion. Itwill not address the need for a fairer division oftaxing rights between residence countries andsource countries (which includes most developingcountries).• The OECD assumes that no or low corporate tax isonly a bad thing when corporations can artificiallyshift their taxable profits out of the countries wheretheir substantial economic activities take place.This approach ignores the fact that less corporatetaxation would mean less revenue for developingcountries, and it does not address the problem thatcostly tax competition between countries is notbased only on artificial schemes but also on tryingto attract substantial investment.• Many of the BEPS proposals are quite weak ordifficult to apply. For instance, the OECD is stillwedded to the ‘arm’s-length principle’ for pricingthe third of world trade that is estimated to takeplace within multinationals. However, this approachis highly technical, open to abuse and heavilydemanding on the resources of national taxauthorities in poorer countries.The take-up of the BEPS recommendations around theworld will be influenced by the reality that somegovernments, while often prepared to protect their ownrevenues against tax dodging, are more than willing toundercut other countries’ tax revenues (and their own)by offering tax cuts and tax breaks. It is likely that suchgovernments will take a ‘pick and mix’ approach to theBEPS recommendations, meaning that some loopholesmay be closed while others are left open.Too many governments are still trying to attract foreigninvestment by undercutting other countries on tax.This strategy is ultimately self-defeating because if itsucceeds, other countries can simply copy it. As theInternational Monetary Fund’s Managing DirectorChristine Lagarde has put it: “The problem with therace to the bottom is that everybody ends up on thebottom.” Research from the IMF has found that thespillover effects of cutting taxes mean that allcountries lose out on tax revenues, with developingcountries standing to lose more than twice as muchas richer countries. 2What can developing countries do?The problems of international corporate taxation meanthat developing countries collect much less revenuethan they could. It could take years, however, totackle the assumptions and vested interests thatunderlie the status quo. In the meantime, countries –especially the poorest – need more revenue to buildhospitals, schools and roads. They cannot and shouldnot wait for the world to catch up.Some developing countries have already adoptedmeasures that can help to protect their corporate taxbases and others could follow their example. Thesemeasures include increasing withholding taxes onfinancial outflows; curbing excessive tax deductionsby corporations (a common component of taxavoidance schemes); and adopting simpler methodsof transfer pricing which are easier to police. Suchactions may require developing countries torenegotiate their bilateral tax treaties with othercountries or, as a last resort, to cancel them.Many developing countries have offered large taxincentives to investors in the hope of attracting moreforeign investment. There is a very strong case forgovernments to rigorously review tax incentives andremove those that cannot be shown to producebenefits to the economy and society that are greaterthan their costs in foregone revenue. Groups ofcountries, such as regional economic communities, canalso foreswear tax competition against each other.The governments of developed countries, if they areserious about their public commitments to combatpoverty and promote sustainable development, canalso take steps. They can support a bigger role ininternational tax coordination for the United Nations,which is a more inclusive body than the OECD. Theycan review their own tax rules and treaties and revisethem where they are harming poorer countries. Theycan adopt stronger anti-tax haven rules to deter theirmultinationals from shifting profits out of developingcountries. And they can require multinationals topublish key tax and financial data on a country-bycountrybasis: this would not only help national taxauthorities in other countries but, crucially, enablegreater public scrutiny of corporate taxation.

Levelling Up/ 6In the long run, there will need to be a globalsettlement that ensures greater fairness betweenricher and poorer countries and brings an end tocountries trying to undercut each other’s tax revenues.Such a settlement would be more effective if enactedvia a global agreement, which would most likely needto put a floor under corporate tax rates and set acommon definition of the corporate tax base (theincome that can be taxed). This could also be thepoint at which to abandon the ‘arm’s length principle’,which treats multinationals as if they were collectionsof independent entities, and move to the taxation ofmultinationals as single global entities.It may take years and a great deal of diplomatic effortto reach such a global settlement. But it will benecessary to relieve the pressure of tax competitionon developing countries, enabling them to raise morerevenue than they otherwise would, and placing themin a stronger position to invest in curbing poverty.International corporate taxation, in its current form,has developed piecemeal since the era when theworld was dominated by Western colonial powers.The world has changed out of all recognition in thattime; developing countries expect, and are entitled to,a much fairer deal in the global economy. Now is thetime for a bold new approach to taxing multinationals.RECOMMENDATIONSThe governments of developing countries could:• Review tax incentives for investors and scrapthose whose costs in foregone revenue are notclearly shown to be outweighed by their benefitsto the economy and society.• Adopt unilateral measures to protect their taxbases, such as disallowing excessive taxdeductions by corporations and requiring them touse simpler methods of transfer pricing.• Review and renegotiate their bilateral tax treatiesto enhance their source taxing rights and be verywary of signing new ones. As a last resort,harmful treaties could be cancelled.• Continue to press for an intergovernmental bodyfor tax cooperation at the United Nations, withsufficient resources and a broad mandate thatextends to source and residence taxing rights andtax competition.The governments of developed countries should:• Support the creation of an international body fortax cooperation at the United Nations, with abroad mandate and sufficient resources.• Review their own tax rules and treaties and revisethem where they are harming poorer countries.• Ensure their anti-tax haven (Controlled ForeignCompany) rules are effective and apply to profitsshifted by multinationals out of third countries, notjust the developed country itself.• Require multinationals to publish country-bycountryreports on their turnover, profits, taxesand key economic data such as numbers ofemployees and tangible assets.All governments should:• Stop trying to undercut each other’s tax revenuesby lowering effective tax rates for multinationals,through whatever means.• Work in the longer term towards a globalagreement to curb corporate tax competition,which would probably require a minimum effectivetax rate and common tax base, and consider ashift to unitary taxation.

Levelling Up / 7PART One: Developing countries andthe problem of taxing multinationalsTaxes, teachers, nurses and roadsGovernments need taxation to raise funds foressential public services for their citizens, such ashealthcare and education, and to pay for publicinfrastructure such as transport which is needed toraise living standards and improve the economy. Indeveloping countries where a majority of citizens livein poverty (or close to it), these tax-funded publicservices are particularly important. A majority of theworld’s poor are women and tax-funded publicservices are vital to their economic empowerment. 3In recent years, developing countries have collectedmore tax than before. Data from the International Centrefor Tax and Development suggest that on average,developing countries collected about 16 per cent oftheir Gross Domestic Product (GDP) in taxes in 2009(excluding taxes related to natural resources), comparedto about 13 per cent of their GDP in 1990. 4 ActionAidfound a similar average increase in tax collection in fivedeveloping countries (Cambodia, Kenya, Nepal, Nigeriaand Tanzania) in the decade before 2013. 5Even so, levels of tax collection remain much lowerthan in rich countries. According to the World Bank,tax revenues accounted for 10-14 per cent of GDP inlow-income countries in 2009 and just under 20 percent of GDP in middle-income countries. 6 Thiscompares to about 33 per cent in OECD countries,rising above 40 per cent in some European countries. 7This gap implies that low- and middle-incomecountries could raise significantly more tax than theydo at the moment. The gap may be even bigger inreality, as some developing countries are known tohave underestimated the size of their GDP. 8This report looks at a revenue source that isparticularly important to developing countries: taxfrom multinational corporations. If countries are toraise more revenues to pay for their owndevelopment, then multinational investments needto be sufficiently taxed. The ability of developingcountries to do so faces major challenges, however,because of problems in international taxation whichare hard for these countries to influence andbecause of the practice (common in developing anddeveloped countries alike) of giving away large sumsin the form of tax breaks to investors.Corporate taxation: twice as importantfor developing countriesTaxing corporations matters more for developingcountries. The International Monetary Fund (IMF) hasfound that corporate income taxes account forabout 16 per cent of government revenues in lowandmiddle-income countries, compared to just overeight per cent in high-income countries. 9 ActionAid’sfive-country study found that in 2009-10, corporatetaxes accounted for 11 per cent of total revenues inTanzania, 14 per cent in Cambodia,16 per cent inNepal and 20 per cent in Kenya. 10 These estimatesdo not include other revenues paid by corporations:for developing countries, natural resource royaltiesand trade taxes can also be very significant.Figure 1: Rich countries collect farmore tax from corporations thanpoor countries3.5%3.0%OECD High-Income CountriesLow-Income CountriesCorporate taxes as % of GDP2.5%2.0%1.5%1.0%0.5%Source: ActionAid estimates, based on data from theInternational Centre for Tax and Development (ICTD)0.0%Early 1990s Around 2000 Late 2000s

Levelling Up/ 8Why tax matters for developingcountries: a view from ZambiaIvor Mwena is the head teacher of IsokoPrimary School in Zambia, which is heavilydependent on revenue from mining and hasoften struggled to raise taxes frommultinationals. He told ActionAid:“Our school was founded in 1942 duringBritish colonial times, and has been housed inits current building since after Zambianindependence in the 1960s. As thecommunity has grown, so have the number ofchildren attending the school, and the schoolbuilding has long been too small toaccommodate all the students. The buildingonly has four classrooms, and so the studentgroups have had to take turns at using theclassrooms. This resulted in the school onlybeing able to offer two hours of teaching toeach class a day, less than half of what thenational curriculum prescribes.We realised we needed to extend the schooland build more classrooms. However, therewere no funds to do so, so the communitywrote a letter to the government asking forfunds, but we did not receive a reply. So withActionAid’s support the local communitysourced building materials and collected somefunds to construct a new school buildingthemselves from 2010 onwards.The new building was ready in October 2014.The extra classrooms means that eachstudent will now get four hours of teachingtime instead of two hours a day, bringing theteacher-student time in line with the nationalcurriculum. The schools serves over 700Ivor Mwena, head teacher of aprimary school in Zambiapupils, over half of which can now be taughtin the new classrooms.Although we have the new classrooms, theydo not yet have any desks, meaning thestudents have to sit on the concrete floorduring classes. We face other problems as well– while the first seven years of education arefree, the students in year 8 and 9 have to pay100 kwacha (roughly £10) per term. This is aconsiderable sum of money considering localwages. The grants the school gets from thegovernment are also regularly delayed,meaning it is hard to pay teachers on time. Ifthe government had more tax revenue theycould fund constructing more blocks to housemore pupils in more schools, pay for thedesks in the new building and make sure wereceive our grant on time.”Photo: ActionAidOne reason why corporate taxes matter so much isthat it is often easier for poorer countries withunderstaffed revenue authorities to try and collect taxfrom a few big companies in the formal sector thanfrom individuals, or from the informal economy. Thatsaid, ActionAid has found cases where, due tocorporate tax breaks and tax avoidance, citizens haveactually paid more income tax for a given period thanlocal subsidiaries of multinationals. 11Another reason for the importance of corporate taxesis that developing countries used to earn more fromtrade taxes but have often cut them back in line withthe free-trade orthodoxy promoted by the IMF, WorldBank and aid donors and embedded in tradeagreements.Foreign direct investment (FDI) has grown inimportance for developing countries. The IMF says ithas tripled since the 1980s to about a third of theirGDP. 12 So far, however, the increasing scale of FDI inthe world’s poorest countries, as a percentage of theirGDP, has not been accompanied by a significantincrease in the share of corporate tax revenues inGDP. Costly flaws in international taxation need to beaddressed.

Levelling Up / 9Figure 2: Foreign investment has grown as a share of the economy in low-income countries, butcorporate tax revenues haven’t20%Corporate tax paid15%Foreign investments (FDI stock)% of GDP10%5%0%1990 1995 2000 2005 2010YearSource: ActionAid estimates based on ICTD and UNCTAD dataTax system? What tax system?There is no international corporate tax system assuch. Each country has its own national tax rules,which can affect other countries by influencing thebehaviour of investors. Then there are bilateral taxtreaties that divide up the rights to tax corporateincome between ‘residence’ countries wheremultinationals are headquartered and ‘sourcecountries’, where they invest. And there are rules oragreements that aim to standardise certain tax rulesacross regions: examples include the legal directivesof the European Union or the tax cooperationagreement of the Southern African DevelopmentCommunity. 13There are also global norms and guidelines from theOrganisation for Economic Cooperation andDevelopment (OECD) and the UN Committee ofExperts on International Cooperation in Tax Matters.The OECD, which is dominated by countries from theglobal North, is vastly better-resourced and moreinfluential than the UN tax committee, although itsdominance has started to be challenged by China,India and other big, middle-income countries (seebox, The OECD versus the UN). All this adds up to ahugely complex and sometimes incoherent situationwhich is far from being a system.Many multinationals have become skilled at exploitingthe complexities of international taxation in order tocut their tax bills. Aided by small armies of lawyersand accountants, they divide up their global activitiesso that more of their taxable income ends up in taxhavens and low-tax jurisdictions. This problem hasbeen made worse by the digitised economy becausemore and more profit is linked to intangible assetssuch as software or brands, the rights to which areeasily located in tax havens.Big business is far from being a passive taker of taxrules. Corporate lobbyists constantly argue for lowertaxes and tax incentives and warn politicians and thepublic that without them, job-creating foreigninvestment will flow elsewhere. Some even take theview that taxes on corporate profits should beabolished altogether. 14 The notion that tax competitionbetween countries is inevitable, even desirable, hascome to inform much governmental thinking oncorporate taxation. 15

Levelling Up / 11The effect of such flaws in international taxation isthat, in the words of the OECD: “Some multinationalsuse strategies that allow them to pay as little as fiveper cent in corporate taxes when smaller businesses[in OECD countries] are paying up to 30 per cent.” 22The European Commission has noted that: “While thestatutory corporate tax rate in the EU Member Stateslies between 10 and 35 per cent, the analysis ofLuxLeaks documents showed that the effective taxrates paid by some multinationals in the EU werebelow one or two per cent.” 23If effective tax rates can fall this low in wealthycountries with relatively well-resourced tax authorities,it is not hard to see that the problem might be muchworse in poorer countries with fewer tax officials, lessexpertise and less access to necessary data.The costs of tax avoidance to developing countriesare thought to be very large, even though insufficientdata make an exact calculation impossible.UNCTAD’s World Investment Report for 2015suggested that developing countries may lose “someUS$100 billion” a year in tax due to foreign investmentbeing channelled through offshore hubs. 24 An analysisfrom the IMF in May 2015 offered an even largerfigure: a “highly speculative” estimate that developingcountries could lose US$213 billion a year to taxavoidance. 25 This represents a huge amount ofrevenue that could have helped relieve povertythrough spending on public services.The IMF says its own experience in developingcountries shows that “the amounts at stake in a singletax planning case now quite routinely run into tens orhundreds of millions of dollars”. 26 This finding isconsistent with ActionAid’s own work. Our researchon brewing company SABMiller estimated that thecompany may have avoided as much as US$20million a year in tax in Africa and India. Subsidiarieswere paying royalties to an affiliate in theNetherlands to use its African beer brands, payingmanagement fees to an affiliate in Switzerland andprocuring goods and borrowing money from arelated company in Mauritius. All of these countriesare tax havens. 27Our 2015 study of Paladin, an Australian-ownedmining company active in Malawi, found that oversix years the company had paid US$135 million inmanagement fees to an affiliate in the Netherlands,costing Malawi an estimated US$20 million in losttax revenues. The total revenue foregone by Malawi,also due to generous tax breaks granted to thecompany and tax deductions for interest paymentson intra-company loans, was estimated to beUS$43 million over six years, enough to pay theannual salaries of 17,000 nurses. 28Tax avoidance not only deprives governments of agreat deal of revenue that could be used to providepublic services for the poor; it also gives an unfairadvantage to multinationals, in developing anddeveloped countries, over domestic companieswhich cannot easily reduce their tax bills by shiftingincome abroad. The problem also undermines trustin the tax system when the public sees bigcompanies avoiding tax while citizens have to pay.Income tax paid:US$ 220billionTax avoided:US$ 100billionEstimates of corporatetaxes paid and avoidedin developing countriesSource: estimates by UNCTAD

Levelling Up/ 12The problem of tax evasionAnother huge source of revenue loss is taxevasion. The possible losses from this problemare very large. For example, a recent report bythe African Union’s High Level Panel on IllicitFinancial Flows estimates that the continent islosing some US$50-60 billion in illicit financialflows each year – money which is goingunreported and untaxed. 29 The African Unionincludes tax avoidance in its definition of illicitfinancial flows.Global Financial Integrity (GFI), an influentialUS-based NGO, offers an even higher estimateof illicit financial flows of US$63 billion in 2012from sub-Saharan Africa alone. 30 This estimatedoes not include tax-avoiding transactionswithin multinationals. GFI recommends thattrade-related tax fraud be tackled by greaterpublic disclosure of the ownership and taxaffairs of companies, and more resources forcustoms enforcement.The problems of international corporate taxation cometo a head in three inter-connected areas that are onlypartly addressed by the BEPS Project, or not at all(see ‘The problem with BEPS’, below):• Bilateral taxation treaties, which divide taxingrights between source and residence countries,and the interaction of these treaties with nationaltax rules.• Tax competition caused by governmentsundercutting each other through offering taxincentives to investors (and, in the case of taxhavens, the opportunity to avoid tax completely).• The pricing of transactions within multinationalgroups based on the ‘arm’s length principle’.A spider’s web of tax treatiesThe global network of bilateral tax treaties – there arenow more than 3,000 of them – was originallyintended to encourage investment by dividing uptaxing rights between the ‘source countries’ wheremultinationals invest and the ‘residence countries’where they are headquartered, so that income earnedin the former by an investor from the latter would notbe taxed in both. These treaties are still commonlyreferred to as ‘double taxation treaties’ though it isarguable that double taxation is not as serious aproblem as implied, not least because manyresidence countries no longer commonly taxmultinationals’ foreign income (see ‘Residencecountries and tax avoidance’, below).There are two problems with tax treaties fordeveloping countries. Firstly, they tend to skew theglobal distribution of taxing rights away from countriesthat are recipients of foreign investment and towardsthe home countries of multinationals. This isparticularly true for treaties based on the OECD model(see box, ‘The OECD versus the UN’). Secondly, theyfacilitate tax avoidance through treaty shopping – therouting of foreign investments via third countries toexploit their tax treaties.Taxing rightsTax treaties typically allocate to the source country theright to tax the ‘active’, or business income, earnedby a foreign investor in that country, provided that theinvestor’s activities are of a type and duration which issufficient to create a taxable presence or ‘permanentestablishment’ (PE). The right to tax ‘passive’ orinvestment income is allocated to the residencecountry.Multinationals can exploit the provisions of tax treaties,in combination with domestic rules, to avoid tax. Onemethod is to avoid having a permanent establishment ina source country altogether by ensuring, for example,that lucrative sales in that country are booked in aneighbouring tax haven. Giant US digital companiessuch as Google and Amazon are notorious for thispractice in Europe, though Amazon promised to curtailit in May 2015 after heavy public pressure. .31A multinational with a permanent establishment in asource country can avoid tax by arranging for asubsidiary in a tax haven to take ownership of assetssuch as intellectual property or capital. The subsidiaryin the source country then makes payments to theoffshore subsidiary to use these assets, in the form ofroyalties, fees or interest on internal loans. Becausesuch payments are deductible from profits in the

Levelling Up / 13source country as costs of business, the effect is toshift profit into the tax haven where it will face little orno tax. Multinationals commonly trade withthemselves in this way (see ‘The incomprehensiblecomplexity of transfer pricing’, below).Developing countries can defend themselves againstthis kind of profit-shifting by imposing withholdingtaxes on financial outflows, which means that theycan collect at least some tax. But in the hope ofattracting investment, developing countries have oftensigned tax treaties which curtail their rights to chargewithholding taxes, or even cancel these rightsaltogether. This is a significant problem for poorercountries: in some of them, withholding taxes ondividends, interest and royalty payments to foreignentities can account for as much as five per cent oftotal tax revenues. 32Treaty shoppingBecause some treaties offer better terms for investorsthan others, such as lower rates of withholding tax,there is an incentive for multinationals to go ‘treatyshopping’.This means that they route theirinvestments in source countries through the taxhavens that have the most favourable treaties withthose countries.ActionAid showed in November 2013 that Deloitte, oneof the ‘Big Four’ accounting firms, was advisinginvestors to avoid tax in Africa by routing theirinvestments through holding companies in Mauritius, atax haven. An investor briefing by Deloitte showed thata Chinese company could exploit Mauritius’ tax treatywith Mozambique to take advantage of treaty provisionson withholding taxes and capital gains taxes. In thisway, Deloitte explained, a company could reduce thetax being “suffered” in Mozambique. The latter is one ofthe world’s poorest countries and had an average lifeexpectancy of 49 at the time that Deloitte was advisinginvestors on ways to dodge its taxes. 33There are other defence mechanisms against treatyshopping, such as anti-abuse clauses in tax treaties.However, these defences rely on national taxauthorities having the means, the information and thedetermination to successfully challenge tax avoidanceschemes that can be highly complex and spanmultiple jurisdictions.Residence countries and tax avoidanceCross-border tax avoidance only makes sense if amultinational can ensure that profits shifted out of asource country end up somewhere where theseprofits will be taxed less, or not at all. Twenty-six of 34OECD countries have now adopted some form of‘territorial taxation’, meaning that income earned bytheir multinationals abroad is no longer usually taxedat home. 34 This gives multinationals a further incentiveto shift profits out of source countries.The US, by contrast to these countries, still taxes theforeign income of its multinationals but only when thatincome is brought home. As a result, US corporationshave accumulated a staggering US$2.1 trillion inglobal profits in offshore hubs rather than bring themoney back to the United States. These offshorefunds are actually allowed to be invested in the US invarious ways – they just aren’t taxed there. 35 As with aterritorial system, this ‘worldwide system with deferral’gives a big incentive to US corporations to avoid taxesin other countries if they can.Residence countries do have rules that are meant todeter their multinationals from shifting income into taxhavens. These ‘controlled foreign company” (CFC)rules aim to nullify the incentive for multinationals toshift profits into tax havens by stipulating that tax muststill be paid on these shifted profits at the residencecountry’s tax rate. CFC rules are designed to protectresidence countries but they can also deter profitshiftingfrom other countries, as long as they apply toFigure 4: The OECD model treaty depresses developing countries’ taxing rightsModel TreatyMaximum WHT ondividendsMaximum WHT oninterestMaximum WHT onroyaltiesOECD 5 or 15 per cent* 10 per cent Exempt from WHTUN No maximum limit No maximum limit No maximum limitSADC No maximum limit No maximum limit No maximum limitASEAN 15 per cent 15 per cent 15 per cent* The lower rate of WHT would be charged on dividends when the foreigncompany owns more than 25 per cent of the subsidiary in the source country.Source: OECD, UN, SADC

Levelling Up/ 14Taxing rights: the OECDversus the UNThe OECD was established in 1948 to run theUS-financed reconstruction of Europe after theSecond World War. The great majority of theOECD’s 34 members are in the global North. TheOECD has a huge influence on international taxnorms and practices, and its members havebeen adamantly opposed to expanding the roleof the United Nations in tax matters, whichwould give a greater say to developingcountries. The UN’s Committee of Experts onInternational Cooperation in Tax Matters hasmembers from OECD and non-OECD countries.It has an explicit mandate to considerrelationships between developed anddeveloping countries, but has a fraction of theOECD’s resources, employing only two full-timestaff and meeting in plenary just once a year.The OECD is a champion of the ‘arm’s lengthprinciple’ used for transfer pricing withinmultinational groups. This highly technicalapproach, which rests on the fiction thatmultinationals can be treated as collections ofseparate entities, is particularly difficult for taxofficials in poor countries to apply.The OECD’s Model Tax Convention (a blueprintfor tax treaties) limits the rates of withholdingtaxes that source countries can charge onfinancial outflows to between zero and 15 percent (see Figure 4). This limitation mattersbecause withholding taxes are an importantcounter-measure against profit-shifting. In atleast 40 developing countries, withholding taxrates for at least one form of passive income(that is, income from investments) are set indomestic law at higher than 15 per cent,sometimes much higher. 36 So if developingcountries bind themselves to treaties based onthe OECD model, and these treaties overridetheir domestic law, then they may be givingaway taxing rights on significant amounts ofrevenue.The UN Model Double Taxation Convention ismore favourable for developing countries in thesense that it gives them more room to negotiatewithholding tax rates with their treaty partners,as well as offering a slightly wider definition ofwhat can be taxed. For instance, the UN Modelgives greater scope to source countries to taxthe provision of services. 37Large developing countries have questioned theOECD’s dominance on tax matters and called fora bigger role for the UN. A strongly worded letterfrom India in 2012 complained: “It isinconceivable as to how a standard developedby governments of only 34 countries can beaccepted by governments of other countries asa ‘standard’ of sharing of revenue oninternational transactions between source andresident country when it only takes care of theinterest of developed countries and hasseriously restricted the taxing power of sourcecountr[ies].” 38At the time of writing (mid-2015), the issue ofupgrading the UN expert committee into aninter-governmental body, or replacing it with newbody, was under negotiation betweengovernments in the UN’s Financing forDevelopment framework. The G77 group ofdeveloping countries and China were calling fora stronger role for the UN while OECD countrieswere generally against it (though there werereports of divergent views among Europeancountries). 39A stronger UN tax body could not be expectedto rapidly solve all the problems of internationalcorporate taxation, some of which are deep andintractable. But given the right mandate andresources, it could respond to these problems ina more inclusive way than the OECD because allthe world’s countries have a seat at the UN anda say in its deliberations.Regardless of the outcome of currentnegotiations over the role of the UN, thelandscape of international tax cooperation isslowly shifting. A sign of changing times is thatthe Base Erosion and Profit Shifting (BEPS)Project, though led by the OECD, has beencarried out under the auspices of the G20 groupof countries, which includes China, India andother big developing countries. It seemsprobable that these larger countries, if not alldeveloping countries, will exert a greaterinfluence over the norms and practices ofinternational taxation in future.

Levelling Up / 15all of a multinational’s income in tax havens,regardless of where that income has come from.As the OECD has noted, CFC rules that also coverprofits shifted out of third countries would help toprotect developing countries. 40 Not all CFC rules dothis, however. The UK’s rules used to do this, butwere deliberately watered down in 2012 so as to onlyapply to income shifted out of the UK itself. Althoughthe government has stopped short of explicitly sayingso, the obvious result of this change has been tomake the UK more attractive as a base formultinationals by removing a deterrent to theiravoidance of tax in other countries.One provision of the UK’s CFC rules, the so-called‘finance company partial exemption’, actually offers a75 per cent tax break on profits a multinational makesfrom lending to itself via an offshore hub. Oneprominent British tax adviser described this provisionas “almost government-approved tax avoidance”. 41The high cost of tax incentivesMany governments set out to attract investment byoffering tax incentives that are often exceedinglyexpensive, even though their effectiveness is doubtful.The problem of tax incentives can be seen as anaspect of the wider problem of tax competitionbetween countries, which can also take the form oflowering headline tax rates for all companies (see PartThree: Towards a global agreement to curb taxcompetition).Tax incentives for investors impose a very large cost onnational treasuries in addition to the costs of taxavoidance and evasion. ActionAid estimated in 2013that developing countries, mostly upper-middle incomecountries, give away some US$139 billion a year incorporate income tax incentives. 42 Tax incentives haveproliferated across sub-Saharan Africa, according to theIMF, with 69 per cent of countries offering tax holidayscompared to only 45 per cent in 1980, and more thanhalf of countries reducing their headline rates ofcorporate income tax. 43Governments in East Africa were giving away up toUS$2.8 billion a year in tax incentives, according toresearch published in 2012 by ActionAid and the TaxJustice Network-Africa. Not all of these incentives arebad. Some, such as reductions in value-added taxes,can help reduce poverty. But much of the cost wasexplained by tax breaks which are meant to attractforeign investment but are not necessary to do so. 44The problem of generous tax incentives is a globalone and not confined to developing countries by anymeans. The UK has been chastised by its legislatorsfor failing to keep tabs on tax breaks worth billions ofpounds a year, including some for large companies. 45Figure 5: The high cost of tax incentivesAnnual corporate income tax foregone(US$ billion)Developing countries by regionEurope and Central Asia 24.5Middle East and North Africa 4.7East Asia and Pacific 55.1South Asia 13.8Sub-Saharan Africa 7.6Latin America and the Caribbean 33.2Developing countries by income groupLow 2.5Lower-middle 29.2Upper-middle 104.5Total 138.9Source: ActionAid, “Give Us A Break”, 2013

Levelling Up/ 16Tax incentives take various forms. Discretionaryincentives give favourable treatment to particularcompanies; they are often awarded behind closeddoors and are particularly vulnerable to corruption andinfluence-peddling. Tax holidays apply to a period atthe start of an investment while free zones offer taxbreaks to companies that locate within them. Stabilityagreements between investors and governmentsfreeze the tax terms applied to the former, making itharder for governments to change them in future. 46 Inrich countries, there has been a recent proliferation oftax breaks on the profits from intellectual property –the so-called ‘patent boxes’ and ‘knowledge boxes’.International institutions that previously encouragedtax incentives in developing countries have swungaway from them. In 2011, a report to the G20 by theIMF, OECD, United Nations and World Bankconcluded that: “Incentives, including corporateincome tax (CIT) exemptions in free trade zones,continue to undermine revenue from the CIT; wheregovernance is poor, they may do little to attractinvestment – and when they do attract [FDI], this maywell be at the expense of domestic investment or FDIinto some other country. Tax-driven investment mayalso prove transitory.” 47The ostensible justification for tax incentives is thatgovernments must attract investment to create jobsand other benefits to their economies, even if thismeans giving up some revenue. Smaller and poorerdeveloping countries with less to offer foreigninvestors in other ways may feel that they have nochoice but to offer tax incentives. However, theevidence suggests that tax is only one factor ininvestment decisions and not the most important. TheIMF argues: “Reduced tax rates and incentives canattract foreign investment, but only where otherbusiness conditions are good. Business surveysrepeatedly find that while taxation matters for foreigninvestors, other considerations – infrastructure, rule oflaw, labor – matter more.” 48If one country succeeds in attracting more investmentby slashing its effective tax rates, then other countrieswill inevitably do the same. A research paper from theIMF has estimated that if all countries cut theirheadline tax rates by one per cent, then a typicalcountry’s tax base is cut by 3.7 per cent. The papernotes: “The spillover base effect is largest fordeveloping countries. Compared to OECD countries,the base spillovers from others’ tax rates are two tothree times larger, and statistically more significant.” 49The logical end-result of countries continuing toundercut each other by lowering tax rates and offeringtax breaks must be that the most mobile forms ofinternational capital are eventually not taxed at all. Asthe IMF’s Managing Director Christine Lagardesuccinctly put it in a speech in 2014: “The trouble withthe race to the bottom is that everybody ends up onthe bottom.” 50The incomprehensible complexity oftransfer pricingAnother core concept of international taxation tocome under strain is the “arm’s length” principle’.Long championed by the OECD and adopted intonational tax regimes around the world, the “arm’slength” approach requires transactions withinmultinational groups to be priced by comparison withsimilar deals between independent companies in anopen market.Intra-group trade is thought to account for more than30 per cent of all world trade. 51 Multinationals have abig incentive to misprice these transactions so that asmuch profit as possible is allocated to theirsubsidiaries in tax havens. The sums involved are verylarge: UK tax officials, for example, have reclaimedaround US$1.3 billion a year by challenging thetransfer pricing assessments of multinationals. 52The process of determining the “arm’s length” price ishighly technical and agreement on the correct pricecan come down to negotiation between themultinational and the tax authority. The former, with itsexpert advisers and superior access to market data, isoften in a much stronger position than the latter.Datasets of comparable transactions (or“comparables”) may be expensive for tax authoritiesto obtain or difficult to use. The Kenyan RevenueAuthority bought an expensive comparables databaseand was largely unable to find relevant data in it. 53Rwanda’s tax authority has previously declined to buysuch databases, citing similar concerns. 54The “arm’s length” principle is flawed because it isbased on a fiction: in reality, the management of amultinational group has a high degree of control overthe form and timing of transactions within the group,which could never exist in a deal betweenindependent companies in the open market. TheIndependent Commission for the Reform ofInternational Corporate Taxation (ICRICT), anActionAid-supported group of former ministers andtop economists including the Nobel Prize-winningeconomist winner Joseph Stiglitz and former UNUnder-Secretary-General José Antonio Ocampo,concluded in June 2015 that: “Multinationalcorporations act – and therefore should likewise be

Levelling Up / 17taxed – as single firms doing business acrossinternational borders.” 55Large developing countries have come up with theirown variations on transfer pricing out of dissatisfactionwith the OECD’s approach. China and India havechampioned the concept of ‘location-specificadvantages’: they consider that access to the hugeChinese and Indian markets is in itself a source ofvalue for multinationals, so a greater share of profitsfrom intra-group transactions should be allocated tosubsidiaries in China or India (and taxed there). 56Brazil has adopted its own approach based on arequirement for multinationals to use fixed margins forpricing transactions with related companies, or withcompanies in low-tax jurisdictions, thus making itharder to allocate large amounts of profit to taxhavens. 57 India and some Latin American countriesuse the ‘Sixth Method’, in contrast to the five mainmethods favoured by the OECD, which links thepricing of commodity transactions betweensubsidiaries to the price of that commodity in theopen market (meaning that it is not necessary to huntfor comparable transactions). 58The OECD is a staunch defender of the arm’s lengthprinciple, complaining that: “Civil society and NGOs[are] sometimes addressing very complex tax issues ina simplistic manner and pointing fingers at the “arm’slength” principle ... as the cause of all theseproblems.” 59 In practice, the OECD seems to bequietly shifting towards an emphasis on ‘profit-split’methods, which rely less than others on the need tofind comparable transactions in the open market.There is a credible longer-term argument for ditchingthe arm’s length principle altogether and moving tounitary taxation, as ICRICT recommends. Under thissystem, a multinational would file a single set ofaccounts on its global income and the rights to taxthis income would be divided among the countrieswhere it operates on the basis of a pre-agreedformula. This approach would remove the incentive forprofit-shifting into tax havens, since the profits wouldbe taxed irrespective of where they ended up. ICRICTalso recommends a minimum global tax rate, whichwould be needed to stop countries undercutting eachother by offering tax breaks on their shares of theprofit allocated to them. At the time this briefing waswritten in mid-2015, the European Commission wasattempting to revive a plan for a ‘commonconsolidated corporate tax base’, a form of formularyapportionment (see ‘A “ceasefire agreement” andcommon regional tax rules’, below).The implications of unitary taxation for developingcountries are unclear and would not necessarily bepositive for some countries, depending on whatformula is used. For example, states in the UnitedStates use a formula based on sales. But manydeveloping countries are suppliers of raw materialsand labour, not big sales markets for multinationals,and might lose out from a sales-based formula,compelling them to find other ways to raise revenuesfrom companies. 60 For this reason, a carefulassessment of the potential winners and losers fromunitary taxation would need to be part of anytransition.A move towards unitary taxation would need to gohand-in-hand with the democratisation of tax policymaking,for example by enhancing the role of the UNover the OECD. Otherwise, there is a risk that thedesign of the formula would be dominated by biggerand richer countries in their own interests. Anintermediate step could be for national tax authoritiesto make greater use of formulary methods todetermine what tax should be paid by multinationalsin their jurisdiction.

Levelling Up/ 18PART TWO: Why BEPS isn't the answer and whatcountries can do insteadThe BEPS Project: exclusive,incomplete and insufficientThere is now widespread awareness that internationalcorporate taxation needs reform to make it fairer andto curb abuses by multinationals. The biggest fruit ofpressure for reform since the 2007 financial crisis hasbeen the OECD’s Base Erosion and Profit-Shifting(BEPS) Project. This project was endorsed by leadersof the G20 countries in September 2013, giving amandate to the OECD to come up with proposals forcurbing corporate tax avoidance. 61The OECD’s Centre for Tax Policy and Administrationis set to publish 15 detailed sets of recommendationsbetween September 2014 and December 2015,covering topics from transfer pricing, to the complextax avoidance structures known as hybrids, to thedesign of anti-tax haven rules and the availability ofdata to tax authorities. These recommendations aremeant to be implemented in three ways: by a newmultilateral agreement, by the updating of the OECD’sown guidelines (which have quasi-legal status in somecountries) and by changes to national tax laws.The BEPS Project has created an expectation ofreform and some concrete reforms may arise from it.But as a response to deep-seated problems ininternational taxation, the project is deeply flawed andcannot address some of the biggest concerns ofdeveloping countries.The BEPS Project is attempting to shape globalnorms although governments that are not members ofthe OECD or G20 – that is, most of the world’sgovernments – have not been meaningfully included.Some were invited to ‘dialogue meetings’ andconsultations but it was not until November 2014,after loud criticism (including from civil societyorganisations like ActionAid) that a small number ofdeveloping countries were invited to join keymeetings. 62 This was still only a small proportion ofcountries and by the time they joined, the parametersof the BEPS project had already been set.The capacity of the private sector to influence BEPSdiscussions is vastly greater. For example, 87 per centof responses to the BEPS consultation on country-bycountryreporting – an important form of transparencyoriginally devised by civil society campaigners of theTax Justice Network – were from business. Theoverwhelming majority were against this form ofreporting. Corporations are fully entitled to argue theirviews, but the sheer ratio of business submissionsversus non-business submissions across the BEPSprocess is a telling indicator of the power dynamics atplay. 63From the start, BEPS has been limited byassumptions that reflect the interests of wealthycountries in the global North. One assumption is thattax avoidance can be addressed separately fromimbalances between the taxing rights of residenceand source countries. The OECD acknowledges thatthe latter is a big concern for developing countries,which are mostly source countries, but does not seethe BEPS Project as the place to address it.Another highly problematic assumption, oftenrepeated by the OECD, is that, “low or no [corporatetaxation] is not a cause for concern per se, but itbecomes so when it is associated with practices thatartificially segregate taxable income from activities thatgenerate it.” 64 Yet if corporations pay less tax theneither someone else must pay more, or publicservices must be cut. For poor countries the claim isactually harmful: if these countries were no longer ableto tax corporations, they would lose a great deal ofrevenue that they would struggle to make up fromother sources, if at all.At the time of writing, it seems likely that manycountries would adopt a ‘pick and mix’ approach tothe BEPS recommendations, choosing which ones toadopt and in what form. Such an approach might leadto more corporate tax being paid, though it is notclear which countries might benefit. It is likely thatthere will be many gaps and loopholes in theimplementation of the BEPS Project as governments,urged on by corporate lobbyists, pursue what theysee as their own national interests.Many of the BEPS Project recommendations are tooweak, too complicated or are actually harmful as faras developing countries are concerned.

Levelling Up / 19Figure 6: How the BEPS recommendations fall shortProblem What BEPS proposes Implications fordeveloping countriesWhat countries coulddo insteadMultinationals avoid a taxablepresence or ‘permanentestablishment’ in a sourcecountry.Minor changes to thedefinition of ‘permanentestablishment’ in tax treaties.Inadequate in response to thedigitalised economy and theability of companies to dobusiness from offshore.Developing countries couldstrengthen source taxingrights on service fees andconsider counter-measuressuch as anti-abuse rules.Multinationals can claim bigtax deductions in sourcecountries for inter-companypayments to tax havens.Where it is not certain that aresidence country will taxincome, the source countrycan tax it.Limiting deductions for debtinterest.BEPS underlines the need fora general principle thatincome not taxed in onejurisdiction must be taxed inanother.The proposals on debt interestallow a wide range ofexceptions, however.Developing countries couldlimit or disallow more taxdeductions.They can also impose higherwithholding taxes on intercompanypayments. This mayrequire renegotiating orexiting from tax treaties.Multinationals can route theirinvestments via tax havens totake advantage of their taxtreaties with source countries.Inserting anti-abuse clausesinto all bilateral tax treaties.Anti-abuse clauses mighthelp, but this proposal doesn’taddress the bias of taxingrights towards residencecountries in the OECD Modeltreaty.Developing countries couldrenegotiate their treaties, notjust to strengthen anti-abuseclauses but to increase theirsource taxing rights.Some countries offer taxbreaks which are designed toundercut other countries’ taxbases.Placing limits on certain kindsof tax breaks linked tointellectual property.The proposals do not addressthe tax breaks most commonin developing countries and dolittle to curb tax competition.Rigorously review all taxbreaks for investors and scrapthose whose benefits tosociety do not justify theircosts.The “arm’s length” method forpricing transactions withinmultinationals is highlycomplicated and open toabuse.Complex, minor changes tothe status quo.The proposals will not addressthe problem of transfermispricing in developingcountries.Rely on simpler methods, suchas profit splits, and consideralternatives like fixed marginsor the ‘Sixth Method’.Some developed countrieshave weak anti-tax haven(CFC) rules.Minor revisions to CFC rules.The BEPS proposals are veryweak because they do notrequire CFC rules to deterprofit-shifting out of thirdcountries, includingdeveloping countries.Developed countries shouldstrengthen their CFC rules andmake sure that they apply tocorporate profits shifted out ofthird countries.Lack of transparency makes itimpossible for tax authoritiesand the public to holdmultinationals to account.Large multinationals shouldmake country-by-countryreports of key tax andfinancial data to national taxauthorities.Only covers very bigcompanies. Reports wouldn’tbe public and may not beeasily available to developingcountries.Developed countries shouldrequire their multinationals tomake these reports public. Thereporting threshold must below enough to capture alllarge companies.Extend and formalise the useof arbitration to resolvedisputes related to taxtreaties.Likely to constraingovernments’ freedom ofaction in dealing withinvestors.Reject the proposal andimprove the resolution of taxdisputes through the domesticlegal system.The OECD wants all countriesto adopt the BEPS proposals.A multilateral agreement thatincorporates many of theBEPS proposals.Likely to reinforce the OECD’sbias towards residencecountries.Developing countries shouldnot sign such an agreement.

Levelling Up/ 20If BEPS won’t solve the problem,what can developing countries do?BEPS is not going to be the holistic overhaul ofinternational corporate taxation that developingcountries need. In the longer term, there will need tobe a new consensus that recognises the imperativenot only to curb tax avoidance but also to stem taxcompetition and redistribute the power to set taxingnorms more fairly between richer and poorercountries.Such a consensus does not seem likely to emerge inthe near future because the status quo, including thebelief in tax competition, is still deeply entrenched.However, some developing countries have alreadyadopted measures to defend their corporate taxbases that could be copied by other countries,whether unilaterally or in regional groupings. Overtime, such measures should put pressure on OECDcountries, and on multinationals themselves, torecognise the need for a fairer and more inclusiveconsensus on international corporate taxation.So, beyond building up the capacity of their nationaltax authorities, what measures could developingcountries take to shore up their corporate tax bases?The list presented here that follows draws on the workof the Tax Justice Network and other sources. 65 Notall measures might be appropriate for all countries butthey suggest the range of possibilities that exist, evenwithin the constraints of the status quo. Some can beadopted unilaterally, while others may require therevision or scrapping of bilateral tax treaties.Measures that developing countries could takeinclude scrapping unjustified tax incentives; adoptingsimpler methods of transfer pricing; taking othermeasures to deter tax avoidance and increase theirsource taxing rights; reviewing and renegotiating theirtax treaties and ensuring that capital gains, includingon indirect transfers of ownership, can be taxed.Scrapping unjustified tax incentivesTax incentives are set in domestic law, meaning that adeveloping country can choose to review them, andscrap or phase out those which do not justify theircosts (which are often very large). There may be caseswhere a government’s freedom of action is limited bycontracts or investment agreements with foreigncompanies, in which case these might have to berenegotiated first.Not all tax incentives are necessarily bad fordevelopment and some may be necessary to correctmarket failures or achieve aims that cannot beachieved through other policies. But given their hugecosts, governments ought to subject them to rigorousscrutiny and cancel or phase out those incentives thatcannot be clearly shown to justify this cost.Some governments are grappling with the problem.For example, Kenya was reported in April 2015 to beconsidering a proposal from its tax authority to scraptax exemptions, including a 10-year tax holiday forforeign investors in its export processing zones. 66Tanzania passed new laws in 2014 to curb taxincentives, aiming to collect another US$500 million ayear in revenues. 67 In the Philippines, however, a newlaw to bring more transparency to tax incentivesappeared to be contested in the government, as wellas being lobbied against by foreign business. 68A first step for governments would be to review all taxincentives granted to investors with a view toremoving many of them, especially those that involvethe exercise of discretionary power by officials.Incentives should only be retained if it can be shownthat their benefits to the economy and societyoutweigh their costs in foregone revenue. To this end,governments ought to publish an annual analysis thatidentifies all tax incentives and their beneficiaries, andshows their costs to the national budget.Where tax incentives are driven by corruption or bypatronage – for example, where governments granttax breaks to companies in return for financial supportfor the ruling political party – then reform may be hardto separate from wider reforms of governance, suchas curbs on political donations and greatertransparency in relationships between officials andbusiness people.Concerns about over-generous tax incentives are farfrom unique to developing countries. A rigorousreview of tax incentives should also take place indeveloped countries such as the UK where, as notedearlier, the government has been chastised bylegislators for failing to keep adequate track of billionsof pounds in tax incentives, including for largecorporations. 69Making transfer pricing stronger andsimplerThere is ample scope for multinationals to shift profitsout of source countries by having their subsidiaries inthese countries trade with affiliates in tax havens atinflated prices. The status quo puts the onus onnational tax authorities to determine whether theprices arrived at by multinationals are reasonable or

Levelling Up / 21not. This is a demanding task, even for bigger andricher countries.A first step would be for a government to ensure thatit has specific transfer-pricing rules and a team ofspecialists in its tax authority that can apply them. TheAfrican Union’s High Level Panel on Illicit FinancialFlows found that: “Very few African countries havetransfer pricing units in their government structures,and the few that do have them suffer from staffshortages.” 70Developing countries could require simplerapproaches to transfer pricing, for example based onthe Brazilian approach that sets fixed profit marginsfor transactions within certain parameters. Forcommodity transactions, the so-called ‘Sixth Method’used in India and Latin America, which ties the pricesof intra-group transactions to the prices ofcommodities in the open market, might offer analternative. Critics argue that this method does nottake into account all the factors that might determinethe price of a transaction, such as transport costs, 71but it has the advantage of simplicity.The BEPS Monitoring Group (BMG), a civil societyumbrella group that includes ActionAid, recommendsthat countries increase their use of profit-splitmethods, one of the five approaches favoured by theOECD. This approach entails allocating the profits of atransaction to different subsidiaries of a multinationalgroup in line with their contribution to that transaction.The question of how profits are split is an importantone, however. The OECD argues that profits shouldbe split in line with the assets and functions (that is,key people) that each subsidiary contributes to thetransaction, and the risks that it assumes. The BMGdisagrees, because assets, functions and risks caneasily be moved around within a multinational groupso as to allow the attribution of more profits, based onthese factors, to subsidiaries in tax havens. The BMGargues instead for the adoption of simple ‘allocationkeys’ for factors which are harder to shift around,such as numbers of staff, expenses, revenues andnumbers of customers. 72While such approaches offer a simpler and moreeffective way for developing countries to respond totransfer mispricing, they do not address the essentialproblem of the arm’s length principle: that it treatscentrally controlled and highly coordinated entities asif they could be compared to independent companiesworking separately of each other. This is why reformsof the current system cannot substitute for thepossibility of a global shift to unitary taxation in future.Increasing taxing rights and deterring taxavoidanceSource countries can act against tax avoidance bylimiting the amounts that companies can deduct fromtheir profits for payments to affiliates in low-taxcountries. Peru, for example, does not allowcompanies to deduct most expenses derived fromtransactions with entities in tax havens. 73 South Africahas introduced new rules to stop companiesdeducting more than 40 per cent of their profits tocover interest payments to related companies that arenot taxed in South Africa. 74Some developing countries, including India andseveral countries in Latin America, impose muchhigher withholding taxes on transactions with taxhavens as a deterrent to profit-shifting. Brazil applies a25 per cent tax to transactions with a ‘blacklist’ of taxhavens. Argentina applies a 35 per cent tax oninterest payments to tax havens. Chile charges a 30per cent withholding tax on payments to tax havensfor certain types of intellectual property. 75 These higherdeterrent rates in domestic law may, however, besuperseded by lower rates in tax treaties.India and Colombia have both put tax havens on ablacklist – which triggers higher withholding taxes – asa negotiating tactic. Colombia successfully pressuredPanama into signing a tax information exchangeagreement by putting it on its blacklist. 76 Indiasuspended its tax treaty with Cyprus as a way ofputting pressure on the latter not to allow itself to beused as a conduit jurisdiction for companies fromelsewhere to invest in India. 77Many developing countries have been pushing forgreater taxing rights over services, an area of growingimportance in the digital economy. Some Africancountries, including Tanzania, Ghana and Namibia, areeither introducing or increasing withholding taxes onservices. 78 An advantage of the UN model tax treaty isthat gives greater authority to source countries thanits OECD equivalent by deeming that an entity whichcarries out service or consulting activities in a sourcecountry for more than 183 days in a given year hascreated a taxable ‘permanent establishment’ there.Research by the International Bureau of FiscalDocumentation (IBFD) has found that in 2013, 46 percent of tax treaties concluded by countries outside theOECD allowed these countries to tax services atsource, compared to 31 per cent in 1997. 79 Thissuggests that developing countries are having somesuccess in including such provisions in their taxtreaties. The UN expert committee is currently working

Levelling Up/ 22on a new article on the taxation of payments forservices, to be included in the model treaty in future.Debate among committee members at their annualmeeting in Switzerland in October 2014 revealed aclear split between OECD and non-OECD countries,with some of the former apparently reluctant to seegreater source taxation of services. 80If a multinational can do profitable business in adeveloping country without having a permanentestablishment (PE) there, then the country stands tolose tax revenues on those profits. The UK, a sourcecountry for many foreign multinationals, hasintroduced its own unilateral response to theoffshoring of corporate profits, including the avoidanceof PE status and other artificial arrangements, in theform of a new Diverted Profits Tax.The effect of this tax is that profits deemed to havebeen diverted from the UK can be taxed at 25 percent, rather than the statutory rate of 20 per cent.Australia has come up with its own variant, whichinvolves a modification of its existing anti-abuse rule. 81The effectiveness of the Diverted Profits Tax has yet tobe tested, but the concept could provide a model fordeveloping countries whose authorities are strugglingto tax multinationals using existing anti-abuse rules.Reviewing and renegotiating tax treatiesAny developing country concerned by corporatetaxation ought to review its tax treaties with othercountries and be very wary of entering into new ones.There are grounds to think that increasing numbers ofgovernments are becoming aware of the loss ofrevenues arising from unfavourable tax treaties. 82These revenues can be very significant. The IMF hasestimated that the United States’ tax treaties withnon-OECD countries cost the latter US$1.6 billion in2010 in foregone withholding taxes. 83Studies in the Netherlands have variously estimatedthe cost of its tax treaties to developing countries, inforegone withholding taxes, at anywhere betweenUS$150 million and US$770 million a year. 84 This iswhy the IMF notes that, “[developing] countries shouldnot enter treaties lightly – all too often this has beendone as a political gesture – but with close andwell-advised attention to the risks that may becreated”. 85The argument against tax treaties is the same as thatagainst tax incentives in general: they are anexpensive way to send signals to foreign investorswhich governments could do in more productive ways– for instance by investing more in improving thecountry’s infrastructure, increasing the efficiency of itsadministration or curbing corruption. All of thesereduce costs to foreign investors and would havesignificant and direct benefits for citizens, which taxtreaties do not.Governments ought to review their existing treaties toidentify areas where they may be losing revenue, suchas overly narrow definitions of a permanentestablishment, clauses which pin withholding tax ratesbelow the rates set in domestic law and inadequateanti-abuse measures, particularly in treaties with taxhavens. It is also important that treaties do not stopgovernments from taxing capital gains on the offshoretransfer of domestic assets (see below).Where a treaty is causing significant loss of revenues,or may do in future, governments could request thatthe treaty be renegotiated. If a treaty partner refusesto renegotiate and the developing country is sufferingsignificant losses, then it may ultimately be necessaryfor the latter to withdraw from the treaty.Various developing countries have successfullyrenegotiated tax treaties with other countries. India iscurrently doing so with Mauritius, as has SouthAfrica. 86 Rwanda renegotiated its treaty with Mauritiusand agreed a newer treaty which provides forwithholding tax rates of 10 percent on dividends,interest and royalties, plus a tax rate of 12 percent onmanagement fees, compared to no taxing rights onthese items in the earlier treaty. 87Uganda has re-evaluated its position on tax treaties:“We have stopped negotiations of any new agreementuntil we have a policy in place that will not only offerguidelines but give clear priorities of what our interestsand objectives are,” Uganda’s commissioner for taxpolicy, Moses Kaggwa, was quoted as saying inmid-2014. 88It is more unusual for a country to withdraw from taxtreaties. Indonesia allowed its tax treaty with Mauritiusto lapse in 2005. In 2011, Mongolia scrapped its taxtreaties with the Netherlands, Luxembourg, Kuwaitand the United Arab Emirates. At issue was theMongolian government’s concern that miningcompanies in the country were avoiding withholdingtaxes on outbound payments. 89 Mining companieshad committed themselves to large investments inMongolia at the time of the controversy, which mayhave offered the government some assurance thatscrapping the treaties would not lead to investorspulling out of the country.For developing countries in a weaker bargainingposition, it might make sense to work with othercountries in the same region to present a common

Levelling Up / 23position to foreign investors. Many regional groupings,including the Southern African DevelopmentCommunity (SADC), the East African Community(EAC), the Common Market for Eastern and SouthernAfrica (COMESA) and the Association of SoutheastAsian Nations (ASEAN) all have their own model taxagreements, though not all of the countries in theseblocs have ratified these agreements. 90Ensuring that ‘indirect transfers’ can betaxedWhen a company sells an asset to another companyat a profit, the rise in the asset’s value is commonlysubject to capital gains tax (though some countriesoffer exemptions). Capital gains tax represents animportant potential source of income for developingcountries. This is particularly the case in the oil, gasand mining industries, where it is common forextraction rights worth billions of dollars to changehands, and in other high-value industries such astelecommunications.Multinationals commonly place the ownership of theirsubsidiaries in developing countries in the hands ofholding companies in tax havens. If the offshoreholding company is sold to another investor, then thesubsidiary in the developing country may changehands without the country concerned being able tocharge capital gains tax. In some cases this isbecause the country’s domestic law does not providefor taxation of capital gains. In other cases, there is adomestic law but it is overridden by the terms of abilateral tax treaty.Thus there is a strong case for developing countries toreview their domestic laws and tax treaties and ensurethat capital gains can be taxed not just on the sale ofassets, but also of shares in companies, even wherethe transaction takes place offshore and several stepshigher up the chain of corporate ownership. The IMFpoints out that to be able to tax an offshoretransaction, a national tax authority needs to knowabout it in the first place. This could be addressed byrequiring that the authority be notified of any assetdisposals and by the sharing of tax informationbetween countries. 91If BEPS won’t solve the problem,what should developed countriesdo?There are various measures that the governments ofdeveloped countries could take if they want to helpdeveloping countries collect a fairer share of tax oncorporate profits. A cynic might argue that developedcountries have little interest in ensuring that ‘their’multinationals pay more tax in poorer countries. But inaddition to the principled argument that richercountries should help poorer ones, there is also thepragmatic argument that countries that collect moretax, including taxes on corporate profits, will dependless on foreign aid and spend more on public goodssuch as infrastructure and education, which alsomake a country more attractive for investment.Developed countries could support a bigger role forthe UN in international tax cooperation, reviewnational tax rules and treaties and revise those thatharm developing countries, ensure that their CFCrules cover profits shifted from third countries andrequire their multinationals to adopt public country-bycountryreporting of their tax affairs.Supporting a bigger role for the UN ininternational tax cooperationA simple step that developed countries could take inthe short term is to support the creation of an intergovernmentalbody on tax cooperation under theauspices of the UN, with the resources and mandateto address all the problems outlined in this briefing.The existing expert committee could support this newbody, which would have much greater legitimacy thanthe OECD.However, the UN could not be expected to rapidlysolve the problems of international corporate taxation.A more powerful UN tax body would not automaticallyreconcile the interests of OECD countries, largemiddle-income countries and smaller, poorerdeveloping countries: rather, it would provide a spacefor compromises to be negotiated between them. Thegreat advantage of the UN over the OECD, however,is that all countries could be equally representedthere. Even the smallest countries have some capacityto take part in UN meetings. Thus a continuousdebate and negotiation of tax norms at the UN wouldhave greater legitimacy than the OECD. It would alsobe able to take on problems that the OECD isunwilling to deal with, such as the imbalance betweensource and residence countries and the problem oftax competition.Reviewing national tax rules and treatiesto make them fairerDeveloped countries should be willing to survey theirown corporate tax rules and treaties in order todetermine whether they are costing revenue todeveloping countries, then be willing to modify them ifnecessary to make them fairer. The IMF, OECD, UNand World Bank recommended in 2011 that G20

Levelling Up/ 24countries should undertake ‘spillover analyses’ of anyproposed changes to their tax systems to determinewhether they might be harming developing countries.These institutions recommended that where harm wasfound, the changes should be modified to try andreduce it and the analysis should be published so thatdeveloping countries can take measures to protecttheir own tax revenues. 92The Netherlands agreed in 2013 to review its taxtreaties with 23 least-developed countries, aftercriticism from civil society groups about the use ofthese treaties by multinationals, combined with theDutch low-tax regime for holding companies, toreduce taxes in these countries. 93 Ireland, another bigconduit jurisdiction for multinationals, was due topublish its own spillover analysis as this briefing waswritten in mid-2015.Ensuring strong CFC rules which captureprofit shifted out of third countriesThe recent IMF paper on tax spillovers argues thatwith many OECD countries having adopted a territorialtax system, “tough CFC rules” would be an effectiveway of curbing harmful spillover effects from onecountry to another and mitigating pressure oncountries to cut their tax rates. 94 This would be for thesimple reason that strong CFC rules make it muchless attractive for multinationals to shift profits into taxhavens, since those profits still face taxation at thehome-country rate.Unfortunately, not all OECD countries have effectiveCFC rules. The UK deliberately weakened its rules in2012, as noted earlier. The UK parliament’s committeefor international development noted that thegovernment minister responsible at the time “… didnot deny that there would be a cost to developingcountries. He stressed that the objective of the CFCrules was to protect UK tax revenues, not those ofdeveloping countries. Given that … the government isalso seeking to support revenue collection indeveloping countries, such a comment indicates alack of joined-up thinking.” 95This, in a nutshell, is the argument for stronger CFCrules – by deterring tax avoidance, they should help tobackstop developing countries’ own efforts to raisemore tax revenues. The more countries that do so,the greater the protection that is offered to allcountries’ tax bases. For this reason, all developedcountries (and developing countries which areresidence countries for multinationals) ought to reviewthe effectiveness of their CFC rules, toughening themif necessary and ensuring that they apply to corporateprofits shifted from third countries.Adopting public country-by-countryreportingAnother reform that could be rapidly adopted indeveloped countries – and which would greatly helpdeveloping countries – is to require public country-bycountryreporting by multinationals of their sales,profits, taxes and other key economic data, such asthe number of employees and tangible assets in eachcountry where they operate. Such information wouldmake it much easier to see where there areimbalances between the places where amultinational’s substantial activities take place and theplaces where it books its profits and pays its taxes.The OECD’s BEPS Project has recommended a usefultemplate for this form of reporting which is close to themodel originally proposed by the Tax Justice Network, 96but there are profound shortcomings with the OECD’sproposed approach (see Figure 6). A much simpler andmore effective approach would be that long proposedby civil society groups, which is to make the reportspublic in a timely way and without redactions.The argument for making this information public isthat doing so would enable the media, legislators, civilsociety watchdogs, economists and financial analyststo access it and act as a force for accountability, notonly on multinationals but also on national taxauthorities. Much of the recent impetus for reform ofglobal corporate taxation has been created by thesegroups. By taking the concept of transparency andturning it into a limited and confidential form ofreporting, the OECD is heading in the wrong direction.There is a new legal requirement for financialinstitutions in the European Union to report a set oftax and financial data on a country-by-country basiswhich contains fewer types of data than than thatproposed by the OECD, but which would still providea useful picture. A study by PwC for the EuropeanCommission found that the publication of thesereports would be likely to improve public trust in thefinancial sector, “without ... having noticeable negativeeconomic consequences, including the impact oncompetitiveness, investment and credit availability andthe stability of the financial system”. 97Some of the world’s biggest banks are based in theEuropean Union. If they can publish country-bycountryreports without being likely to incur anysignificant harmful effects, then there is no reason tothink that multinationals in other sectors and otherparts of the world could not do likewise.

Levelling Up / 25PART THREE: Towards a global agreementto curb tax competitionIf BEPS cannot address the problems faced bydeveloping countries in taxing multinationals, thenmeasures of the kind outlined in Part Two could helpthe former to shore up their corporate tax revenues.Ultimately there needs to be a new global settlementin international corporate taxation, one that is fairer topoorer countries and less open to abuse.Whatever technical measures are adopted to makeinternational taxation fairer to poorer countries, theideology and practice of tax competition need to betackled because of the downward pressure that taxcompetition places on revenue collection and theopportunities it creates for cross-border tax avoidance(which requires low-tax jurisdictions into which profitscan be shifted).In the form of tax incentives adopted by numerousdeveloping countries, tax competition is visiblyreducing the revenues that might otherwise becollected. In the form of spillovers from tax cuts inother countries, tax competition threatens to erodedeveloping countries’ corporate tax bases as theIMF’s research has shown.Tax competition will be hard to rein in, however,because the assumptions that underlie it are soentrenched: for instance, the assumption that tax cutsare justified because profit invested by a corporationin its own business will necessarily produce morevalue for society than the same amount of tax revenuespent on public goods by the state. This ignores themany benefits of corporate income taxes, above andbeyond the public goods they pay for, which rangefrom curbing inequality to backstopping personalincome taxes, which the wealthy could otherwiseavoid by incorporation. 98A government’s right to tax is among the most basicprerogatives of the sovereign state and the setting oftaxes is a highly political question. For this reason, agenuinely inclusive and effective agreement betweengovernments to curb tax competition seems unlikelyfor some years to come. There are steps that couldbe taken, however, to pave the way for it. Animportant start would be to recognise that the BEPSProject will not resolve the deeper problems ofinternational corporate taxation. Other possible stepsinclude a ‘ceasefire agreement’ by which countriesagree not to further undercut each other, and theimplementation of common tax rules by groups ofcountries.Recognising that BEPS will not make thedeeper problems go awayThe end of the BEPS Project in the second half of2015 and the long period of implementation that islikely to follow may occupy the space that manygovernments have for thinking about internationaltaxation. Some may want to assert that the problemsof international corporate taxation have been dealtwith for the time being. But BEPS is not designed toaddress deeper questions about the balance betweensource versus residence taxation, or the problem oftax competition itself. If not addressed, theseproblems will simply fester.The governments of the G20 and OECD countries,and the OECD itself, ought to acknowledge onconclusion of the BEPS Project that itsrecommendations are not meant to be a final answerto all the problems of international taxation. TheOECD’s expertise can be a valuable resource forinternational tax cooperation, but an institution ownedby 34 predominantly rich countries cannot attempt tospeak for the common interest of 193 countries in anylegitimate way. A more inclusive global tax body isneeded, which engages with the deeper problems: inthe absence of such a body, developing countries arejustified in going their own way if they choose.A ‘ceasefire agreement’ and commonregional tax rulesOne step towards a global agreement could be forcountries (whether in particular regions or across theworld) to make a commitment in principle not to takeactions which would further lower effective tax rateson corporate income – a kind of ‘ceasefireagreement’. Such a commitment might well beundermined by particular governments that are stillwedded to tax competition, but it would be a usefulstarting point for further debate and might create peerpressure on those governments which undermineothers.

Levelling Up/ 26An intergovernmental tax body at the United Nationscould undertake to broker such a commitment withina certain number of years. The G20 is another forumwhose members might come to see a commoninterest in taking a shared public position against taxcompetition. A prior condition, however, is arecognition that ‘fair’ and ‘harmful’ tax competition arehard to distinguish from each other in practice and willultimately have similar effects on corporate revenuesand therefore, on the fairness of the tax system toother taxpayers. Condemnation of ‘harmful’ taxcompetition – the preferred stance of manygovernments - is unlikely to be effective if itstigmatises certain kinds of tax breaks and allowsothers to grow unchecked.Given the complexities of securing global agreementin the near future, tax cooperation across regionsseems sensible as a prior step. There are alreadyvarious examples of regional cooperation to setcommon tax rules, the most advanced being thelegally binding directives of the European Union thatgovern the flows of capital between EU memberstates. In the wake of the LuxLeaks scandal, theEuropean Commission has called for a revival of theCommon Consolidated Corporate Tax Base (CCCTB),a scheme which was first mooted in 2001 and whichstalled some years later due to lack of support amongmember states.The CCCTB is a form of formulary apportionment thatwould be voluntary for multinationals to join. Eachmultinational would file one set of accounts in itsheadquarters jurisdiction, according to a standardiseddefinition of taxable profit. Its profits would then beallocated to the EU member states in which theyarise, based on a formula covering such factors ascapital, labour costs and sales. The income wouldthen be taxed in each member state at that country’stax rate.The creation of the CCCTB ought to disincentivise taxavoidance based on artificial corporate structures. Amultinational would gain no advantage from basing itsgroup finance company in Luxembourg, for example,since it would have to pay tax on its Europe-wideprofits regardless of where in Europe these profitswere booked. But the CCCTB would not preventcountries competing to offer lower tax rates for thoseactivities reflected in the formula, so it might justchange the character of tax competition rather thancurbing it.The CCCTB could be effective against tax competitionif combined with a minimum European corporate taxrate. The latter seems far off for the time being,however, since the EU’s constitutional rules require taxmeasures to be agreed unanimously by all 28 memberstates, including some of the world’s biggestcorporate tax havens. It was reported in May 2015that Germany and France had raised the idea of acommon European corporate tax rate, to which theUK objected. 99Even the common tax base itself might only besecured in a watered-down form, according toActionAid’s conversations with diplomats in Brusselsin early 2015. But slow, incremental progress towardsgreater European consensus does not seemimpossible in the longer run, given that the logic of taxcompetition is ultimately self-defeating and publicpressures on governments to reform corporatetaxation are unlikely to go away.The substance of a global agreement tocurb tax competitionTo be durable, an international consensus on curbingtax competition will need to be built up gradually bythe kinds of measures described above. Such aconsensus would need to be embodied in aninternational agreement, in order to exert pressure onjurisdictions (such as tax havens) that might otherwisechoose to stay outside the consensus.A global agreement to dissuade countries fromundercutting each other on corporate taxation wouldtake considerable time to negotiate. It would face agreat deal of resistance from corporate vestedinterests, not to speak of the technical complexities ofsuch an agreement. So it might make sense to startwith non-binding codes of conduct, politicalstatements of intent and the creation of workinggroups – not just at the United Nations but atinternational financial institutions – to build interest inthe benefits of an agreement and move different viewstowards consensus.An agreement to curb tax competition, by definition,has to curb downward pressure on effective corporatetax rates. This would mean covering all the differentways in which these rates can be pushed down,including the cutting of headline tax rates, special lowrates for certain types of activity, or the narrowing ofthe base of corporate income on which tax ischarged. Whatever its initial form, a global agreementwould probably need to end up explicitly delineating aminimum effective rate of tax on corporate income, orengineering the circumstances in which an implicitglobal consensus can emerge around a minimumrate. A global minimum rate would need to beaccompanied by a common understanding of the

Levelling Up / 27corporate tax base (the kinds of income that can betaxed) to prevent countries from trying to undercuteach other by excluding certain types of income fromthe base.An approach that tries to designate specific taxpractices as ‘harmful’, then roll them back, is unlikelyto succeed in the long term because the definition ofwhat is ‘harmful’ will always come down to negotiationin which the most influential or stubborn governmentscan lower the common denominator. Governmentsunder pressure to drop one kind of tax break maythus simply adopt another. Ireland did so in late 2014by agreeing to phase out its notorious ‘double Irish’tax break, only to announce plans for a new tax breakon profits from intellectual property. Or as theBloomberg news agency neatly put it: “GoodbyeDouble Irish, hello Knowledge Box.” 100Lengthy and arduous diplomatic efforts will be neededto secure a global agreement against tax competition.These efforts should not be wasted on reaching for anagreement that only covers some manifestations ofthe problem and not others. This is why such anagreement needs to put a floor under effective taxrates on corporate income as well as defining acommon base. A global agreement could also be thevehicle for moving to unitary taxation in place of thearm’s length approach, treating multinationals assingle global entities and apportioning profits to theirdifferent countries of operation according to a formula.For a global agreement to succeed, it would need thesupport of major economies that are home tomultinational corporations, including the OECD andG20 countries. An agreement would also need theparticipation of developing countries that are not partof these groupings, not just on the grounds of justicebut also because any country left out of theconsensus may be tempted to set itself up as a taxhaven. With such diverse interests involved, progresstowards an agreement will need to be gradual andinclusive, and is likely to be measured in years.Making a global agreement stickFor a global agreement to be effective, it would needto successfully exert pressure on signatories to keepits terms. An agreement on curbing tax competitioncould combine an effective minimum rate and taxbase with the use of a mechanism to deter countriesfrom adopting tax practices which undercut thisminimum rate and base.One possible model could be the World TradeOrganization’s Anti-Dumping Agreement, whichempowers a country to take counter-measuresagainst products which are being exported to it at lessthan the price which that product would fetch in itshome market. 101 By analogy, a country or group ofcountries whose tax bases were being undercut bythe actions of another country – for example, a taxhaven offering very low rates to multinationals – mightbe empowered to respond by imposing higherwithholding taxes on transactions with that country.A compliance mechanism applied centrally might bemore appropriate, given that one country’s practice oftax competition may have harmful effects onnumerous others. The agreement would need clearand strong provisions for establishing a dedicatedcompliance body and the process for agreeingmembership. Ideally, the compliance body wouldoversee investigations, issue reports and rulings, aswell as handling appeals.There would need to be a non-exhaustive list ofsanctions that could be invoked in cases of nonimplementationof the body’s rulings. The body itselfwould need to be well-resourced to undertakeinvestigations and follow up on rulings, so that theagreement would not be weighted in favour ofwealthier countries. The most logical place to housesuch an agreement and its supporting institutionswould be under the auspices of the United Nations,because of its legitimacy with governments.Some governments may worry that without the abilityto cut tax rates, their economies will find it harder tocompete for investment on other bases. Others mayworry that ‘their’ multinationals will bedisproportionately affected by a floor under effectivetax rates. This is why an intermediate approach, whichaims at changing attitudes over time and seeking outcommon ground, is more likely to be successful thanattempting in the near future to come up with ablueprint for an all-encompassing agreement.

Levelling Up/ 28CONCLUSIONIt will take time to reach a new global settlement thatends the race to the bottom on corporate taxrevenues. In the meantime, countries – especially thepoorest – need revenue to build hospitals, schoolsand roads, and they cannot and should not wait forthe world to catch up. They can step up actionwithout delay to increase their share of revenues.Developed countries need to review their own rulesand treaties too, with global fairness in mind, and bewilling to revise them where needed.Eventually, much more is needed than tinkering withthe current system. The world needs to challenge andreconsider the logic of tax competition. Companiesmay compete, but countries ought to cooperate,rather than be forced by the absence of effectiveglobal governance to fight each other for tax revenue.Ultimately, a new and inclusive global deal is neededto tackle tax competition and tax avoidance, a dealwhich would probably need to include minimumeffective tax rates, a common tax base and thetaxation of multinationals as single, global entities. Forthis to happen, there needs to be a genuinely inclusiveand influential global institution for tax cooperation,where richer and poorer countries all have an equalsay.Current international corporate tax rules weredeveloped piecemeal a century ago, when the worldwas still dominated by the Western colonial powers.The world has changed out of all recognition sincethen, and it is no longer possible, let aloneacceptable, for the global rules to be shaped for thebenefit of the few. Developing countries expect a fairerdeal in the global economy, and people everywherewant to see a more equal world. The old economicorthodoxies are toppling. Now is the time for a boldnew approach to corporate taxation.RECOMMENDATIONSThe governments of developing countries could:• Review tax incentives for investors and scrapthose whose costs in foregone revenue are notclearly shown to be outweighed by their benefitsto the economy and society.• Adopt unilateral measures to protect their taxbases, such as disallowing excessive taxdeductions by corporations and requiring them touse simpler methods of transfer pricing.• Review and renegotiate their bilateral tax treatiesto enhance their source taxing rights and be verywary of signing new ones. As a last resort,harmful treaties could be cancelled.• Continue to press for an intergovernmental bodyfor tax cooperation at the United Nations, withsufficient resources and a broad mandate thatextends to source and residence taxing rights,and tax competition.The governments of developed countries should:• Support the creation of an international body fortax cooperation at the United Nations, with abroad mandate and sufficient resources.• Review their own tax rules and treaties and revisethem where they are harming poorer countries.• Ensure their anti-tax haven (controlled foreigncompanies, CFC) rules are effective and apply toprofits shifted by multinationals out of thirdcountries, not just the developed country itself.• Require multinationals to publish country-bycountryreports on their turnover, profits, taxesand key economic data such as numbers ofemployees and tangible assets.All governments should:• Stop trying to undercut each other’s tax revenuesby lowering effective tax rates for multinationals,through whatever means.• Work in the longer term towards a globalagreement to curb corporate tax competition,which would probably require a minimum effectivetax rate and common tax base, and consider ashift to unitary taxation.

Levelling Up / 291. UNCTAD. World Investment Report 2015. June 2015. Page 200.2. International Monetary Fund. Spillovers in international corporatetaxation. Staff working paper. May 2014. Page 20.3. ActionAid UK. Close the gap! The cost of inequality in women’s work.March 2015.4. International Centre for Tax and Development. Working Paper 19.The ICTD Government Revenue Dataset. September 2014. Page 36.5. ActionAid. Tax justice: the domestic perspective. A synthesis ofstudies of the tax systems in five developing countries. July 2013.6. World Bank. Financing for Development Post-2015. 2013. Page 9.Figure 2.17. OECD revenue statistics. Tax revenue as % of GDP. Accessed athttp://stats.oecd.org/index.aspx?DataSetCode=REV.8. Financial Times. Uganda joins African wave of GDP rebasing andgets 13 per cent boost. 1st December 2014.9. IMF. Spillovers in international corporate taxation. May 2014. Page 7.Figure 1.10. ActionAid. Tax justice: the domestic perspective. A synthesis ofstudies of the tax systems in five developing countries. July 2013.Page 8.11. ActionAid. Sweet nothings. The human cost of a British sugar giantavoiding taxes in southern Africa. February 2013. Page 3.12. IMF. Spillovers in international corporate taxation. May 2014. Page 6.13. Southern African Development Community. Memorandum ofUnderstanding on co-operation in taxation and related matters.August 2002.14. Private conversations between ActionAid staff and senior staff atlarge accounting firms.15. For a recent analysis of governments’ approaches to taxcompetition, see Financial Times. Countries slow race to bottom ontax competition. 4th May 2014.16. World Bank/PwC. Paying taxes 2015. For example, Page 2 notesthat, “Reforms continue to be made in Africa, while progress is lessevident in South America. South America now has the highestaverage time to comply and Total Tax Rate.”17. International Consortium of Investigative Journalists. Leakeddocuments expose global companies’ secret tax deals inLuxembourg. 5th November 2014.18. ActionAid UK. Addicted to tax havens. The secret life of the FTSE100. October 2011.19. New York Times. How Delaware thrives as a corporate tax haven.30th June 2012.20. UNCTAD. World Investment Report 2015. Page 199.21. UNCTAD. World Investment Report 2015. Page 189.22. OECD. OECD urges stronger international co-operation on corporatetax (media release). 12th February 2013.23. European Commission. Staff Working Document. Technical analysisof focus and scope of the legal proposal accompanying thedocument. Proposal for a Council Directive amending Directive2011/16/EU as regards exchange of information in the field oftaxation. 18th March 2015. Page 16.24. UNCTAD. World Investment Report 2015. Page 200.25. IMF. Base erosion, profit shifting and developing countries. IMFWorking Paper. 29th May 2015. Page 20. Table 6.26. IMF. Spillovers in international corporate taxation. Page 6.27. ActionAid. Calling time. Why SABMiller should stop dodging taxes inAfrica. 2010, updated April 2012.28. ActionAid. An Extractive Affair. How one Australian mining company’stax dealings costs the world’s poorest country millions. June 2015.29. Illicit financial flows. Report of High Level Panel on Illicit FinancialFlows from Africa. February 2015. Page 79.30. Global Financial Integrity. Illicit financial flows from developingcountries: 2003-2012. Page 8. Table D.31. Reuters. Factbox: Apple, Amazon, Google and tax avoidanceschemes. 22nd May 2013. Financial Times. Amazon starts to bookUK sales in Britain. 22nd May 2015.32. Francis Weyzig. Evaluation Issues in Financing for Development.Analysing effects of Dutch corporate tax policy on developingcountries. Netherlands Ministry of Foreign Affairs. November 2013.Page 12.33. ActionAid. Deloitte in Africa – Advising big businesses on how toavoid tax in some of the world’s poorest countries. November 2013.34. IMF. Territorial vs worldwide corporate taxation: implications fordeveloping countries. IMF Working Paper. October 2013. Page 4.35. Citizens for Tax Justice. Offshore shell games 2014. Page 10.36. Deloitte. Withholding tax rates 2015.37. Michael Lennard. The UN Model Tax Convention as compared to theOECD Model Tax Convention. Current points of difference and recentdevelopments. Asia-Pacific Tax Bulletin. January-February 2009.38. Letter to the Financing for Development Office of the UN from theCentral Board of Direct Taxes, Ministry of Finance, Government ofIndia. Dated 12th March 2012. Accessed at http://www.un.org/esa/ffd/tax/2012ICTM/LetterIndia.pdf39. Information obtained by civil society groups in mid-2015.40. OECD. Public Discussion Draft. BEPS Action 3. Strengthening CFCRules. 12th May 2015. Page 12.41. Tax Journal. Corporation tax at 5.5% is ‘almost governmentapprovedavoidance’, says tax adviser. 17th April 2012.42. ActionAid. Give us a break. June 2013. Page 8.43. IMF research quoted in ActionAid. Give us a break. 2013. Page 6.Table 1.44. ActionAid International/Tax Justice Network – Africa. Tax competitionin East Africa: A race to the bottom? April 2012. Page iv.45. House of Commons. Committee of Public Accounts. Tax reliefs.Third Report of Session 2014. Summary.46. ActionAid. Give us a break. Page 4.47. Supporting the development of more effective tax systems. A reportto the G20 Development Working Group by the IMF, OECD, UN andWorld Bank. Page 19.48. IMF. Revenue mobilization in developing countries. Staff paper. 8thMarch 2011. Page 35.49. IMF. Spillovers in international corporate taxation. Page 20.50. Christine Lagarde. The Caribbean and the IMF – building apartnership for the future (speech). 27th June 2014.51. United Nations Practical manual on transfer pricing for developingcountries. 2013. Page ii.52. HM Revenue and Customs. Transfer pricing statistics: 2013 to 2014.6th March 2015.53. ActionAid personal communication. March 2014. BEPS MonitoringGroup response to OECD BEPS report on transfer pricingcomparability data and developing countries. March 2014.54. A. Waris. Rwanda. Understanding transfer pricing. IBFD InternationalTransfer Pricing Journal Vol 21. No. 1. January/February 2014.55. Declaration of the Independent Commission for the Reform ofInternational Corporate Taxation. Statement of Principles. June 2015.56. International Tax Review. Location-specific advantages. India andChina. 23rd January 2014.57. KPMG. Global Transfer Pricing Review. Brazil. 2013.58. PwC. ‘Sixth method’ raises transfer pricing concerns in developingcountries. 29th January 2013.59. OECD. Addressing base erosion and profit shifting. 2013. Page 13.60. Michael C. Durst. The tax policy outlook for developing countries:reflections on international formulary apportionment. InternationalCentre for Tax and Development Working Paper 32. February 2015.61. G20 Leaders’ Declaration. 6th September 2013.62. OECD. Developing countries to play greater role in OECD/G20 effortsto curb corporate tax avoidance. 12 th November 2014.63. ActionAid. The BEPS Process. Failing to deliver for developingcountries. 16th September 2014.64. OECD. Action plan on base erosion and profit shifting. 2013. Page10.65. Krishen Mehta. How developing countries can take control over theirtax destinies. 9th July 2014.66. The East African. Kenya in bid to retire tax breaks to foreigninvestors. 4th April 2015.67. The East African. Tanzania’s law amendment seeks to boost taxcollection. 17th May 2014.68. Manila Times. PH needs updated tax incentives – DOF. 11th March2015.69. See footnote 54 above.70. Report of the High Level Panel on Illicit Financial Flows from Africa.January 2015. Page 71.

Levelling Up/ 3071. PwC. ‘Sixth method’ raises transfer pricing concerns in developingcountries. 29th January 2013.72. BEPS Monitoring Group. Comments on BEPS Action 10. 10thFebruary 2015.73. PwC. Worldwide tax summaries. Corporate Taxes 2014/15. Peru.74. South African Revenue Service. Request for public comment forincorporation into forthcoming 2013 Tax Laws Amendment Bill:proposed limitations against excessive interest tax deductions. 29thApril 2013.75. EY. Worldwide Corporate Tax Guide. 2015.76. Reuters. Panama and Colombia to negotiate tax information-sharingdeal. 21st October 2014.77. LiveMint. India-Cyprus tax treaty talks at an impasse. 15thSeptember 2014.78. PwC. Multinational organisations operating in Africa need to considerthe tax treatment of their transactions upfront – or face significant taxexposure, warns PwC. 31st March 2014.79. Research by the IBFD for the UN expert committee published as TheUN Model in Practice 1997-2013. Bulletin for International Taxation.March 2014.80. UN Economic and Social Council. Committee of Experts onInternational Cooperation in Tax Matters Report on the tenth session(27-31 October 2014). ActionAid attended this meeting as anobserver.81. Heather Self. Australia’s answer to the diverted profits tax. TaxJournal. 22nd May 2015.82. Martin Hearson. Learning from past mistakes in tax and investmenttreaties. 17th October 2014. Accessed at martinhearson.wordpress.com.83. IMF. Spillovers in international corporate taxation. Page 27.84. Francis Weyzig. Evaluation Issues in financing for development. Page67. SOMO. Should the Netherlands sign tax treaties with developingcountries? June 2013. Page 40. Table 2. The SOMO estimateapplies to dividends and interest payments.85. IMF. Spillovers in international corporate taxation. Page 28.86. First Post. India, Mauritius to curb ‘abuse’ of double tax avoidancetreaty. 13th March 2015. Business Day. South Africa urged to finaliserenegotation of Mauritius tax treaty. 29th December 2014.87. The East African. Rwanda and Mauritius sign new tax deal. 9thNovember 2013.88. Daily Monitor. Govt suspends double taxation pacts. 6th June 2014.89. Reuters. In tax case, Mongolia is the mouse that roared. 16th July2013.90. The East African. East Africa edging closer to adopting singletaxation regime. 7th March 2015.91. IMF. Spillovers in international corporate taxation. Page 30.92. IMF, UN, OECD, World Bank. Supporting the development of moreeffective tax systems. Pages 27-2893. Financial Times. Netherlands to review tax treaties with leastdeveloped countries. 6th September 2013.94. IMF. Spillovers in international corporate taxation. Page 38.95. House of Commons. International Development Committee. Tax indeveloping countries: Increasing resources for development. FourthReport of Session 2012–13. Page 20.96. Richard Murphy. Country-by-country reporting. Tax Justice Focus.First quarter 2014 Volume 9 Issue 1.97. Study prepared by PwC for European Commission DG Markt.General assessment of potential economic consequences ofcountry-by-country reporting under CRD IV. Final report September2014. Page 9.98. For a detailed defence of corporate income taxes, see Tax JusticeNetwork. Ten reasons to defend the corporation tax. 18th March2015.99. Daily Telegraph. France and Germany behind plans for ‘common EUcorporation tax’. 26th May 2015.100. Bloomberg. Goodbye double Irish, hello knowledge box. 15thOctober 2014.101. Understanding the WTO: the agreements, anti-dumping, subsidies,safeguards, contingencies, etc. Accessed at www.wto.org.

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