The following post was originally published on The Conversation and is by Prof Kerrie Sadiq of Queensland University of Technology, who I have met a couple of times and whose work I greatly admire. It is reproduced here with permission:
Tax reform is squarely on the agenda for the G20 Brisbane summit in November. The current international tax regime is broken and it's going to take significant effort on a global scale to fix it.
In a recently released CEDA Report on securing the G20's future, I recommended the role Australia could play in ensuring real and substantive progress is made in international tax reform.
There's a very real need to ensure the Brisbane summit is not just a “talkfest”. One group that stands to significantly win or lose from reform, or lack of it, is developing nations.
Beyond the OECD
On the G20 tax reform agenda is the specific problem of tax avoidance. Base erosion and profit shifting (BEPS), promoting international tax transparency and the global sharing of information are prominent.
But an often overlooked priority is ensuring developing nations benefit from the G20's tax agenda, particularly in relation to information sharing. This priority is perhaps the most important in ensuring genuine global success, especially in an era of rapid economic growth in these countries. The work of the G20 and OECD is to be commended, but the question that needs to be addressed is whether it will go far enough in solving the issues facing non-OECD nations.
At a functional level, if developing nations are to benefit from the work of the G20, the tax reform agenda must be responsive to the impact of BEPS in low-income countries.
Many of the world poorest countries rely heavily on corporate income tax. On average, it represents 20% of their revenue compared to 8-10% for developed countries. The same countries are also often the most affected by multinational entities engaging in profit shifting activities.
Data limitations mean it is hard to estimate the cost of aggressive tax planning, but few would challenge studies that indicate it costs developing nations billions of dollars a year. These are the same countries that rely on foreign aid and lack the resources to deal with poverty or fund health care and education.
The OECD report to the G20 Development Working Group outlines the risks and challenges faced by developing nations. As expected, key findings include a lack of legislative measures needed to address BEPS, lack of information, a lack of capacity to implement highly complex rules and to challenge well advised multinational entities, and a lack of effective legislation and gaps in capacity as compared to developed nations.
The OECD report was produced in consultation with developing nations and various international organisations. However, it sought only to address the flaws in the current system rather than considering reasonable alternatives. If developing nations are to genuinely benefit from G20 tax reform further steps need to be taken.
First, developing nations themselves need to be at the table. The membership of the G20 partially addresses this. But at the recent International Tax Symposium in Tokyo and hosted by the Australian Treasury, we saw developed nations, supported by corporate sponsors, largely leading the charge. Many people question whether developing nations and civil society groups who represent them were able to participate on an equal footing.
Second, the G20 must be encouraged to draw on the work of international bodies beyond the OECD and with expertise in international tax. These bodies go further than addressing the flaws in the current system, and examine new models to combat tax avoidance. The IMF is one such example.
In its recent study on spillovers in international corporate taxation (the cross-border effects from national corporate policies), the IMF recognises the problem is especially marked and important for developing countries and that alternatives need to be considered. Some form of minimum taxation for example on turnover, strengthening worldwide taxation, and the use of a formula to allocate the tax base across jurisdictions are all discussed as possible alternatives.
Australia is in a unique position in the Asia-Pacific region to ensure the tax reform agenda is broad and genuinely inclusive. Developing nations must be able to contribute directly to discussions, and the focus of the G20 must extend beyond the priority areas of the OECD.
If developing nations are to truly benefit from the G20 tax reform agenda bolder measures that are arguably more effective and potentially easier to administer should be considered.
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I know you don’t feel able to respond to me, but try hard.
Prif sadiq speaks of developing nations and civil society groups thus: “Many people question whether developing nations and civil society groups who represent them were able to participate on an equal footing.”
What does he mean by “developing nations”? Who are these “civil society groups”? and in what way do the altter represent the former?
I will not try in any way to answer that question
It’s not inability
It’s the fact that the answers are self evident to all but those who refuse to recognise their validity – and never will
If you are amongst that number I think it likely that most in society will say ‘shame on you’ and rightly so
But I know you will be indifferent to that
I have often rejected colleagues’ submissions, explaningn that to me ‘it’s obvious’and ‘clearly’ are not acceptable argument, in fact they indicate that one can’t actually make the case. ‘Self-evident’ is in exactly the same bracket. So, when you say it isn’t inabality that prevents you answering, well I believe it is!
I’ll offer my thoughts, as you appear unable: There is no such thing as a ‘developing nation’; how dare anyone refer to other nations in that way. Civil society groups are made up of.. well people like you Richard! And as for “civil society groups who represent them (developing nations)” just how delusional are you?!
Let’s define the problem away, shall we?
Is that what you’re saying?
And who says we speak for developing countries? We do. And the claim is accepted by many because clearly in much of what tax justice the needs of the world’s poorer nations is at the heart of our work
But you’d rather make believe that neither are true
Thankfully the world ignores people like you
Don’t bother to reply: it will be deleted
‘Ironman’: ‘No such thing as a “developing nation”‘? No? What is one to call a country where people live on less than $1 a day? Would you like to try doing that? We are talking about real spending power here, ‘purchasing power parity’, and $1 = 60 pence, so try living on LESS than 60 pence a day!
As for the groups, you are talking about groups like UNICEF, Oxfam, Save the Children, WaterAid, Médécins sans Frontières, and a host of others, all of which do very good work, which you so casually dismiss as of no consequence, or even an annoyance. Well, they may be annoying to you and your ilk, but they are of vital significance to the people of the _developing world_ they help, and you hinder.
“And as for “civil society groups who represent them (developing nations)” just how delusional are you?”
Presumably you’d prefer them to be represented by the sorts of people that want to be your clients ?
or would you prefer they just STFU?
Kerry Sidiq clearly wants nothing to come out of the BEPS project apart from polishing his own marbles.
This is a G20 project that has to succeed within the G20 and the only way it will is if the political will is there. Apparently it is at the moment and may just last out to the final reports in September 2015.
Bringing the so-called developing countries to the table now (or even last year) would be a recipe for disaster for the project as it will extend the scope of the project and increase the timeline. But which time governments will changed, economies improved and quite fankly, the desire for meaningful change will have dissipated.
Correct way is let OECD and G20 get on with it and make the necessary changes and then deal with the other isssues – otherwise nett gain will be zero.
I know Kerrie Sadiq
I really think you have very seriously misread her
First Kerrie is female
Second she very definitely wants change
Eerie genus
I am sorry that Richard is so unable to handle free debate that he deletes this answer, or that he is so dishonest that he would have you believe I haven’t complemented you (or Dr Blaber) with an answer. However, for the ether, I Don t presume to dictate who represents which nation at international negotiations; I assume each will have its own opinion and make its decision on that.
I delete abusive answers and those that do not contribute to debate
Your comments frequently fall into one or both categories
Richard is right. The definition ‘developing nations’ remains valid. We used to call them ‘Third World,’ until the Iron Curtain was removed.
Many millions in developing nations continue to live on $1-2 per day. This is the result of decades of injustice, with trade rules favouring the already wealthy nations. 250 years ago average income worldwide was roughly even. The Industrial Revolution massively advantaged the UK, Europe, and America, leaving African and Asian nations to struggle to catch up.
The tax avoidance practices of powerful multi-nationals exacerbates the problem, as the developed nations tend to do better at collecting taxes. Further, in recent years, the growing public out-cry has helped with the issue.
Put more simply, richer people, and wealthier nations, have a moral responsibility to help those less well off. Addressing the tax questions is part of our fulfilling this responsibility.