Calling Time - ActionAid

) The G20 and EU should give a political mandate
to the International Accounting Standards
Board to create a global, mandatory standard
that requires all multinational companies to
include a country-by-country breakdown of key
information within their published accounts.
3) Developing countries must not give away
their right to tax royalties, management fees and
other foreign payments at source. It is striking
that the likely tax loss to Ghana and Zambia’s
governments from the schemes we uncovered has
been increased as a result of their double taxation
treaties with Switzerland and the Netherlands,
which reduce the withholding taxes they can
charge on such payments to levels way below
the statutory rate. This should not be the price
exacted by tax havens and developed countries for
improved tax cooperation.
4) Developed countries, meanwhile, should
examine and where necessary reform the way
they tax multinationals, to make tax avoidance in
developing countries less worthwhile, not more
lucrative. For example:
a) In the Uk, proposed reforms to a piece of Uk
anti-avoidance legislation called Controlled
Foreign Company rules will hurt developing
countries by eliminating the penalty applied to
Uk companies that use artificial structures to
divert profits made overseas into tax havens,
unless the tax avoided is Uk tax. 136
b) The Netherlands should put in place antiavoidance
arrangements to prevent the
exploitation of its network of double taxation
agreements as a conduit for financial flows,
for example a withholding tax on interest and
royalty payments to tax havens. 137
5) G20 and EU member states must also work
together to bring a threat of renewed action to
bear against all countries whose fiscal and juridical
frameworks facilitate harmful tax competition,
tax avoidance and tax evasion, especially from
developing countries. This should include the
development of a global, multilateral tax information
exchange agreement.
6) Upgrade the United Nations Committee of Tax
Experts to an intergovernmental body, in which
the political issues of international taxation can
be articulated. A root and branch examination of
transfer pricing and alternatives such as formulary
apportionment is needed, in a political forum that
gives developing countries equal weight and pays
attention to their special needs.
The OECD, as an organisation of developed
countries, cannot address the issue alone. Its
model Double Taxation Agreement and Transfer
Pricing Guidelines are, as a Ghanaian tax official
suggested, designed with the interests of OECD
members in mind, and have been taken further in
that direction by recent revisions. Meanwhile the
UN committee’s equivalent projects diverge from
the OECD in a number of important ways that
represent the interests of developing countries
(though not as far as some critics would like). “As
the rules become more and more entrenched in an
‘international consensus,’” argues Michael Durst,
formerly senior official at the US Internal Revenue
Service, “not only the wealthier industrialized
countries but also developing countries face
pressure to adopt the system, thereby imposing
constraints on the successful developments of
their own fiscal systems.” 138
The bigger prize must be a system that does not
allow large multinational companies to strip out
taxable profits from their subsidiaries, exploiting the
value of their intangible assets, the ambiguity of the
arm’s length price, and the information asymmetry
between themselves and revenue authorities.
This alternative system must be one in which
developing countries are able to hold on to a
bigger share of taxation from multinationals based
in richer countries. Ending the types of practices
outlined in this report is a matter not just of poverty
alleviation and social justice within countries,
but also of the power relations between them.
As countries round the world face gaping fiscal
deficits, tax dodging has become an issue on
which governments, pressure groups and ordinary
people around the world are finally calling time.
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37 Calling time