International tax policies on the agenda
The OECD, UN and the EU are all working on new international tax agreements and treaties. One important question: how far can you go in giving tax incentives to international companies, when you might be structurally hurting another country? This summer, during the Finance for Development conference in Addis Ababa, tax is also high on the agenda. Tax means money and money is needed for development. Last week, the tax experts warmed up in Amsterdam with the Global Tax Policy conference.
Tax has become very politicized in the last couple of years and the news items were not exactly positive. The Dutch government struck deals with Starbucks and large multinationals like Apple, ingeniously made their way in multiple tax systems. Public opinion is harsh, to say the least.
That tax is no longer a purely technical issue, was evident during the Global Tax Policy conference that was held in Amsterdam last week. During the meeting that was organized by the University of Maastricht, the main topics were: tax havens, (unintentional) spillovers due to tax policy, the infamous OECD Base Erosion and Profit Shifting (BEPS) plan and the role of developing countries in the making of international agreements and treaties.
Crafting international agreements is hard, a familiar story. Tax issues, however, seem to have an extra dimension. Michael Lennard, chief of International Tax Cooperation and Trade in the Financing for Development Office for the UN, compared the task with 3d-chess.
Lennard immediately brought the financing of the Sustainable Development Goals to the attention of the conference in his keynote speech. The heirs of the well-known millenniumgoals will take their final shape in New York, in September of this year. But first, the money question has to be discussed during the Finance for Development conference (13-16 July). The UN estimates that it will take 3,9 trillion dollars to fund the new development goals. Right now, around 1,5 trillion financing is budgeted. That means that there is a gap of about 2,4 trillion dollars. Aid alone cannot fill that gap. No wonder that all eyes are on the number one way to make money for governments alike.
The Zero Draft for the Addis Ababa conference is looking rather promising: stricter national rules and improved international cooperation to counter Illicit Financial Flows (IFF) and tax evasion, international guidelines to prevent large differences between national tax climates and the push towards transparency. Upgrading the tax commission of the UN is also on the agenda. This is necessary, because right now they are only budgeted for one international meeting a year and have to make due with a staff of two.
However, Lennard emphasized: ‘It is just a draft.’ He continued his talk with a long list of tensions that won’t be resolved easily. Is it even possible to create a standard set of tax agreements for instance, or do we need multiple models? Where should profit be taxed? Do we want certainty for taxpayers or for governments and their citizenry? What is the line between healthy and harmful tax competition?
The UN official declined, even after multiple tries, to comment on specific country cases. He did say: ‘Certain forms of competition are good. If Apple makes a tablet that is so good, it takes business away from other companies, that is not necessarily bad. Countries have to be able to make themselves attractive to companies, up to the moment when other countries are structurally suffering from their chosen policy.’
What Lennard was getting to are the so called ‘spill over’ effects of a tax policy in one country, on another country. Negative effects of tax policy in richer countries on developing countries, are the most talked about examples of this. In a 2011 paper, the IMF, World Bank, UN and OECD, called upon the G-20 to research what the effects of their tax policies are. The International Bureau of Fiscal Documentation (IBFD) conducts this kind of research.
Most of the participants in the conference do not expect that a united approach to international tax issues, is a possibility. Heinz Zourek, director-general of taxation and customs union for the European Commission, worded the problem like this: ‘Foreign tax officers are greater enemies for tax officers than the tax payers. They are driven by mistrust, which makes cooperation difficult.’ According to the Austrian official, one cannot really speak of an overall EU-tax policy. Every member state has the right to their own policies, as long as it does not hurt the internal market. And those policies differ a lot. Zourek: ‘Anywhere between six and 195 tax boxes.’
The European official does point out that ‘fairness seems to be back in the public debate on taxes.’ And even though member states still expressly holding on to their right to provide incentives for companies, Zourek expects that soon, a deal can be struck to fight tax evasion. On the 18th of March, the European Commission proposed to make the individual agreements that member states make with international companies (so called ‘tax rulings’) public. Zourek is optimistic about how fast this exchange can become reality. According to him, the increased pressure from a negative public opinion, expedites this process.
Exchanging these ‘tax rulings’ between EU-member states, would take place behind closed doors. The same goes for the OECD proposed country-by-country reporting. Francis Weyzig, senior policy advisor with Oxfam Novib, argues that this is not enough. ‘There is an enormous lack of trust among the public. Therefore, we need public data and debate.’ Weyzig wants to see everyone have the opportunity to really grasp the tax-issues. ‘Right now, politicians often don’t know if the policy they implement, is effective.’ Of course, providing and sharing all of the data, will be very complex.
The UN should be a ‘broad church’ where countries of all shapes and sizes can get what they need and be heard, says Michael Lennard. But, unfortunately that is not always the case. The unbalanced international system rears its ugly head at this point in the discussion. Western, rich countries can confer in their club, the OECD, beforehand. Developing countries don’t have a forum or a club that is strong enough to balance out the plans that OECD-countries will have hashed out, at the following UN summit. Roy Rohatgi, head of the Foundation for International Taxation, caused some commotion in the room, when he declared that the OECD forces it’s plans down the throats of the rest of the world: ‘You are ignoring about 60 percent of the world.’
Rohatgi used historical arguments to prove that India and other non-western countries have never been taken seriously in international tax agreements. When however, someone in the audience noted that India acts exactly the same way when it deals with African countries, he could not do anything but agree. ‘India has two faces.’
Mick Moore warned the participants that the world is changing fast. The head of the International Center for Tax and Development argued that with the digital, technical and other economic advancements, the holes in the existing tax systems are getting bigger and bigger. Therefore, it becomes easier for companies to misuse them. Moore further noted that the long awaited shift of power, is really happening. With the founding of the AIID (Asian Infrastructure Investment Bank) and the BRIC countries all carrying out their own specific tax-policies, ‘it ‘won’t take long before the discussions around the OECD eand the UN are dated. It would not surprise me if the developing countries take their chance in three or four years’, said the political scientist.
Besides a future with new, or more precisely different, actors, Mick Moore predicts a future in which inequality will grow. This will be because we are moving towards jobless economic growth. Because of that, developing countries (a term he doesn’t like to use) should start to see taxes as more than just a revenue source. It should be a way to battle inequality and build social security. Of course the tax collection capacity is still a big problem. Moore would like NGO’s to please stop the ‘default-aid’ on this subject: endless workshops and training for tax officials in developing countries. According to him, the way to go is to provide mentors. They would guide their protégées through a number of complicated cases. Tax experts without borders, so to say.