Survival of the Richest

Europe's role in upholding an unjust tax system
Building capacity or compliance?
‘Capacity building’ for developing countries has become
something of a buzzword in discussions on how to solve the
problems of corporate tax dodging. In its communication on
an external strategy on tax, 194 released in January 2016, the
Commission highlights that the EU will focus on providing
capacity building and supporting international initiatives to
‘strengthen legislation and regulation’ in developing countries.
While more resources should indeed be devoted to building
the capacity of developing countries on tax matters, such
projects have at times resulted in problematic approaches
– for example, when representatives from developed
countries and international organisations start drafting
legislation for developing countries. 195
Considering that the implementation of transfer pricing
rules is difficult even for developed countries (see Box 3 on
‘Multinational corporations – separate or single entities’), it
is clear that this system will pose even bigger problems for
developing countries. As Sol Picciotto, Emeritus Professor
at Lancaster University, notes: ‘There has been significant
investment in capacity building for these countries, by the
IMF, the World Bank, the OECD itself, and others; and many
have enacted laws and regulations in recent years, generally
based on the OECD approach, especially on transfer pricing.
However, devoting scarce skilled human resources in
developing countries to attempting to administer a defective
system could provide at best a short-term solution.’ 197
In 2016, Eurodad published a report 196 about the initiative
known as Tax Inspectors Without Borders, which is jointly
led by OECD and the UN Development Programme UNDP.
The report included previously unpublished internal OECD
documents about three pilot projects of Tax Inspectors
Without Borders, and among other things found that:
• The Tax Inspectors Without Borders initiative involves
highly sensitive working methods, since it is based on an
approach where foreign experts get direct access to the
tax administration of developing countries.
• In none of the three pilot projects were the developing
countries receiving the assistance actually leading the
processes when the pilot projects in their countries
were initiated. The authors find this to be contrary to
the aid effectiveness principle on developing country
ownership and leadership and increases the risk that
tax assistance will not be in line with developing country
priorities and interests.
• Serious conflicts of interest seem to have occurred,
and there is a clear risk of further conflicts in the
future. In a pilot project between the UK and Rwanda,
PwC – a company that provides advice to multinational
corporations on their tax planning – played a central
management role. Furthermore, in all three cases, the
donor countries, which were also providing experts to be
deployed into the tax administrations of the developing
countries, had substantial corporate interests in the
recipient country.
• To this day, the Tax Inspectors Without Borders initiative
does not seem to have a clear mechanism for avoiding
similar problems in the future.
34 • Survival of the Richest