Maya Forstater has a blog and draft report out this morning via the Center for Global Development in which she asks whethere it has been approprioate that, as she put it:
International debates on taxation and development are increasingly informed by a popular narrative that there is a ‘pot of gold' for development funding from cracking down on questionable tax practices of multinational enterprises.
I could spend some time questioning the motivation for this report and the fact that if Maya was really serious about getting comment she might have actually consulted those in the NGO community who have been involved with the estimates with which she seeks to engage, but that is not my intention. I will stick to the issues, of which Maya says there are three.
The first is, she says, that NGOs claim that there are huge sums of money lost to developing countries as a result of multinational corporation activity. She challenges this, but admits that:
One thing that's clear is that data are scarce, which in turn makes it hard to find robust and broadly-supported analyses.
I would agree with that: that's why some of us worked so hard to develop alternative estimates. I would readily admit that those estimates are wrong (all estimates are, by definition). I would also readily admit that some are better than others and more recent estimates are definitely better than some older ones, because lessons have been learned. That said though, and as Maya admits, recent estimates, such as those by the IMF and UNCTAD, put the scale of potential revenues in the region of $100- $200 billion which is pretty much exactly where NGOs have placed the bill. Personally I think that may be too high. I say as such in may latest work on UK tax gaps. But who am I to argue with the IMF and UNCTAD? The point is a simple one: whatever the real number is it's big. If this number range includes total world aid then let's not ignore its significance as Maya would seem to want to do. That would just be daft.
The second point Maya makes is that transfer pricing is not wrong, per se. Of course it isn't! No one has said it is. That's why we've always talked about transfer mispricing. But to say this is a non-issue is absurd. Just as Maya is wrong to dismiss the 60% of world trade data is intra-group when this is OECD sourced. As for the scale of the issue, look at my recent work on potential profit shifting by just 17 EU banks. The profits of those banks did not arrive where they were reported without something looking like profit shifting going on. Maya's accusation falls into the straw man category on this issue. What is more, by defending the status quo she suggests there are no alternatives: that is not true. She ignores the whole vibrant debate on these alternatives that the NGO community have created, and the fact that BEPS may well not have happened without us. That's a pretty big exercise in missing the point.
Finally, Maya suggests that the NGO community are saying that:
Multinational corporations could easily pay more tax at no cost to ordinary citizens either in developed or developing countries.
To which she responds:
Tax policy has impacts on the incentives for investment and employment and therefore on growth and jobs. Policy makers have to pursue not only revenue mobilization, but also efficiency, distribution and growth-oriented objectives in their tax reforms.
Actually, we have never said that there is no cost to collecting tax from multinational corporations: we have said that the benefits of doing so may well exceed the costs. That's simple marginal utility analysis on who might make best use of the money, so Maya has this argument wrong. Her response also wholly misses the point that NGOs and those, like me, who engaged in this debate have made time and again that tax competition increases wealth gaps, results in the misallocation of resources in markets, creates opacity that reduces the effectiveness of corporate governance and so increases the cost of capital and so reduces growth, and imposes real burdens on society. That's what we're saying. Maya does, I hate to say, spectacularly miss the point on this, yet again by obsessing on the issue of quantification.
So, what's all this about? Let me offer some speculation.
First, this is not about serious engagement. If it was Maya would have engaged with and listened more carefully to those involved in preparing such estimates.
Second Maya would have understood that way back in 2003 John Christensen and I pretty much set out to put tax abuse on the map by concentrating on getting multinational corporations using tax havens to abuse developing countries on the front pages of newspapers because we knew no more effective way to effect change. As a strategy she should acknowledge that it has been spectacularly successful. But not once, not ever, has anyone said this is the sole solution to the problems of developing countries. We always pointed out there were many more, starting with the corruption that tax havens facilitated in them, the problems VAT created for many of them and many more issues besides. I think Maya has been guilty of both misunderstanding and selective reading.
Third, Maya seems to think 2% of tax revenues does not matter. Respectfully, I beg to differ.
Fourth, Maya concentrates only on numbers. And yet we have never used them to do more than illustrate arguments on country-by-country reporting, automatic information exchange, accountability, governance, corruption, development and so, so much more. Frankly the numbers debate moved on a long time ago. What's all this about then?
And last, for now, if we were so wrong, why has so much of what we called for been adopted?
But let me agree with Maya as well. I have just been awarded a grant (of which more anon when paperwork is all tied up) where part of the application by me says:
The project aims ... to move tax justice debate on from ... current major themes of tax havens, tax avoidance by multinational corporations and the impact of these issues on development to how tax can also be used in domestic economies in the UK and elsewhere to build strong and resilient economies that can meet more of their needs from the tax revenues that they can fairly raise from the economic activity that takes place within their jurisdiction in ways that are compatible with other social and economic aims, including the building of long term sustainability and wealth creation.
We know the issues Maya. And we're still ahead of the game. Maybe you need to catch up is the real message, and spending your time on papers like this one is really just a big waste of time, unless there are other motives at play.
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I wonder if the writers of this report would apply the same logic to all areas of corruption, particularly within developing countries. The same arguments would apply (that cracking down on corruption has a cost, it’s not clear how much money could be recouped, there might be unintended outcomes) – yet very few people would use that as a case for implying that corruption simply doesn’t matter – because it’s a basic question of impunity!
Agreed
She’s inviting comments on her blog ( linked to in your opening sentence ).
Perhaps you should copy these comments across to it, if you haven’t communicated these thoughts to the author already.
I have mailed her
Page 5 of the report
In particular, we would like to acknowledge our advisory group—Alan Carter (Her Majesty’s Revenue and Customs), David McNair (ONE), Judith Freedman and Mike Devereux (Oxford Centre for Business Taxation), Marinke Van Riet (Publish What You Pay), Mike Truman (retired editor of Taxation magazine), Paddy Carter (Overseas Development Institute), Robert Palmer (Global Witness), Heather Self (Pinsent Masons), Wilson Prichard (International Centre for Tax and Development), Gawain Kripke (Oxfam America), Jonathan Glennie (Save the Children) and Jeremy Cape (Dentons).
Others who provided inputs and comments on the draft paper, an earlier concept
paper or to ongoing discussions include Kieren Holmes, Laura Bacon and Martin Tisne of Omidyar Network, Alex Cobham of Tax Justice Network, Mick Moore of the International Centre for Tax and Development, Vanessa Herringshaw of the Transparency and Accountability Initiative, Tim Law of Engaged Taxation, Volker Nitsch at Darmstadt University of Technology, Iain Campbell of the Association of Revenue and Customs, Jesse Griffiths of Eurodad, David Lesperance and Rick Messnick.
Quite a lot of consultation with the NGO community, don’t you think?
Yes
And I can tell you some withdrew because comments were ignored
And those who remained have without exception never worked in this area
I’ll leave it at that bar saying Tim Worstall comments on my work often: I don’t think you should take that as an endorsement by him
“First, this is not about serious engagement. If it was Maya would have engaged with and listened more carefully to those involved in preparing such estimates.”
With great respect, one thing the tax activism movement is renowned for is its abhorrence of meaningful debate or engagement. Your blog is a perfect example of this.
Anybody who takes a contrary view to you and your acolytes is dismissed as wasting your time, being tax abusers or simply just neoliberal. Often and without foundation you call them liars – and you say you are a Quaker?
Frankly, I think she has exposed some of the myths, particularly with the numbers, that the tax activism movement have peddled to embellish their hypotheses.
Of course you think that
I am sure Mike Devereux and Judith Freedman do so too
I’ll keep speaking truth to power
It’s what Quakers do
And, for the record, we have upset a lot of people on the way. It’s called ‘plain speaking’ by Quakers and is applauded
Richard,
This is a consultation draft, released for comments by the NGO community and other experts, after which it will be revised. Its development so far has sparked a number of discussions with people willing to take a look a fresh look at these numbers and assumptions, including but not limited to those on the advisory group (from whom no endorsement is implied — but the discussions were very useful and comments have fed through to the draft).
The paper acknowledges several times the role of the NGO community in raising awareness of this issue and helping to create the political space for BEPS. But nevertheless it makes the case for clearer understanding of the issues and numbers in relation to developing countries — which do matter. I understand your focus is more on the UK, but development organisations have a responsibility in the way they communicate about the economies of developing countries.
On the 3 points:
1) $100 bn or thereabouts of course is a ‘big’ number but the question is how big? It looks quite big compared to global aid budgets, but then global aid budgets are a drop in the ocean in relation to the investment needed and mobilised by developing economies (from both public and private, domestic and international sources). I am not saying we should ignore the significance of international tax avoidance, but neither should we blow it out of proportion as a source of finance for development. Whether the ‘big number’ is, whether $50, $100 or $200 billion, the greatest proportion of it relates to China, Brazil, India, Indonesia, Mexico and other major emerging economies, but is generally misperceived as relating to the poorest countries.
2) On transfer pricing, I am not saying it is not an issue, but it is an issue about which there is a lot of confusion, which prevents clear debate. Often people who surely do know the difference (such as Boyce & Ndikumana http://triplecrisis.com/strategies-for-addressing-capital-flight-part-3/ have written about it in terms that suggest to unwary readers that transfer pricing and mispricing are equivalent). Celebrated ‘cases’ of transfer mispricing such as Simon Pak’s $973 bucket and Christian Aid’s 50p fridges have been taken as clear illustrations of the behaviour of multinationals, despite the fact that they bear no relationship with cases that make it to court. (On the question of whether intra-firm trade is really 60% of world trade, I know the OECD has used this statistic, but they are not infallible, their original reference is to UNCTAD and is a misunderstanding of what UNCTAD wrote).
3) On the investment impacts – I have not seen the NGO analysis of the costs and benefits of raising effective corporate tax rates in developing countries you refer to. The question is not about comparing the marginal utility of $1 in the hands of government vs $1 in the hands of a business, but about the dynamic impacts on investment. At some point (although we don’t know where that point is) taxing businesses more must be a deterrent to investment — therefore we cannot assume that countries whose tax base is already narrowly dependent on few large businesses have an unlimited potential to squeeze additional revenues out of the same set of tax payers.
I know your comments policy is restricted in terms of opinions with which you disagree (which is of course your right as host of this blog), but you and others are welcome to give comments at the CGD blog (or by email).
Maya
First, there is not and never has been a policy barring comments I disagree with on this blog. If you have not got as far as realising that it says a) that your research is pretty poor when all you had to do was read my comments policy, which may well be much more liberal than that at CGD, and b) that you appear to be willing to subscribe to sort of myths that the likes of Tim Worstall are happy to promote. If you want to engage in serious debate I suggest you up your game.
Second, I think you would be wise to note what Alex Cobham had to say on your willingness to hear comments. He was not impressed, and has now said so. Indeed, he says that he thinks your research had a pre-ordained outcome.
Third, I think your comments on NGOs are dangerously close to libelous. I think you need to be very careful about suggesting any NGFO misrepresents the truth and be very clear about your evidence. I have not seen any to sup[ort your claim in your paper.
Fourth, what point are you trying to make on the size of the issue? You say size matters and then dismiss the scale of the issue as currently acknowledged. Which view is appropriate? I can’t tell. You either have a point or you don’t: right now I don’t think you know or have presented any evidence to support your case.
Fifth, on transfer pricing I really do not think Jim Boyce and colleagues have misrepresented the truth. As a matter of fact mispricing and transfer pricing are the same — it’s just that mispriced trades are a subset of all transfer prices. I suggest it is you who has not understood that. And as for the specific examples – they are examples. No one ever said anything else, or even that they were normal. I am really struggling to see your point, as I am on the OECD, who I have heard reiterate the 60% claim, often.
Finally, on your para 3: I have not done the cost benefit. I seriously doubt anyone could, precisely, because the data to make such comparison would be nigh on impossible to find, but this does not for a moment discredit the obvious theoretical point which is fundamental to most standard economic think that I made, in which it would be considered self-evidently true. Apparently you disagree on that point, and you do so in the most spectacular fashion saying:
The question is not about comparing the marginal utility of $1 in the hands of government vs $1 in the hands of a business, but about the dynamic impacts on investment.
With the greatest of respect how did you reach that conclusion? Since when were development agencies in the business of promoting inward investment whether or not it added value to the people of the country where it might occur, as you very clearly imply you think is their job?
When too is it their job to consider whether:
At some point (although we don’t know where that point is) taxing businesses more must be a deterrent to investment – therefore we cannot assume that countries whose tax base is already narrowly dependent on few large businesses have an unlimited potential to squeeze additional revenues out of the same set of tax payers.
This is an issue, maybe for the Oxford Centre for Business Taxation (whose conclusion upon it is all too readily predictable), but consideration of Laffer curve issues is not, in my opinion, what this debate is about. This debate is about:
– whether investment does per se reward many developing countries
– whether the people in those countries know of that benefit
– whether they see that benefit
– whether the states in which they live are right to give massive tax holidays, as is often the case (how low do you want rates to go, by the way?)
– whether corruption has a role in these processes
– whether tax havens help that corruption process
– whether transfer prices are properly applied or not
– whether developing countries have a proper role in setting the rules of transfer pricing
I could go on. But what is glaringly obvious is that you have reduced a major question of ethical and macroeconomic significance impacting on the lives of hundreds of millions and maybe billions of people to a simple question of the Laffer curve and the microeconomics of setting individual tax rates.
To quote John McEnroe “you can’t be serious!” I sincerely hope you aren’t but I have a horrible feeling you are, and if so that would explain precisely why you take the view on my comments policy that you do, and everything else thereafter.
If I’m wrong, tell me. But right now it looks to me that what you’re really saying is that NGOs are not seeking to maximise the profit making opportunities for multinational corporations and you think that means that they misrepresent the true nature of development. Some of us disagree with that view. You have a right to your opinion — but don’t tell us we’re wrong for disagreeing with it.
And if I am wrong, you’re welcome to say so. Until you become repetitive. The I exercise the right to editorial freedom, which is fundamental to a free press, and free blogging.
Regards
Richard
“John Christensen and I pretty much set out to put tax abuse on the map by concentrating on getting multinational corporations using tax havens to abuse developing countries on the front pages of newspapers because we knew no more effective way to effect change.”
John, if you’re reading this, expect me to quote it during our discussion at Latitude on Friday…
I think this goes to the crux of what Maya’s paper is about. She does acknowledge, right at the start and in the conclusion, that it has been very successful, but questions whether allowing figures that could at best be called estimates to dominate the discussion as if facts, and then to be misused still further without question, is appropriate. Tax campaigners must have some responsibility to correct misuse of their figures by the press, even if the misuse supports their campaigning aims. Ultimately this is an ends and means argument.
I don’t think Maya is arguing that some problems could not be solved by amounts of this magnitude, and Alex points out that the specific example she analyses has a non-trivial doubling of the number of doctors. What she argues is that, in terms of the money it would make available to the countries in most need, it does not constitute a deus ex machina to solve all the woes of Africa. You may say that is not what you ever believed, but it is the narrative that has developed in the mainstream press, now tax is headline news. Ditto the meaning of transfer pricing; a quick search of the Guardian will show headlines and stand firsts which all misuse it, with the explanation in the unread copy below the fold.
The discussions, which I was part of, were Chatham House rule, so it is difficult to go into too much detail, but I disagree with Alex’s view that the areas where there was some consensus were not taken on board. And. I can categorically say that it was most definitely Maya’s intention to engage with tax justice advocates on this; indeed the raison d’être of the project was to try and get tax specialists, development specialists and tax campaigners together. I first spoke with Maya when she was just formulating how this project might work, I have welcomed the chance to be a small part of it by being on the advisory panel, and I think she’s done a great job.
Mike
You are as spectacularly missing the point as Maya. I can only presume, as Alex and I do, that it is as deliberate in your case as it is in hers. And if you want evidence of Maya’s pre-disposition, shew held the view she holds now before the so called research took place, and still does so, without any apparent change in the evidence quoted.
This is, however, not the main issue. I am staggered that you think this issue of estimates is quite so important. Let me suggest to you estimates you will have reported many times in yiur magazine as fact. Let’;s start with GDP and the priopertion of it raised and spent in tax. All are estimates depending upon a wide variety of assumptions made. Then there is any profit figure in any set of accounts, which is always an estimate, and often a poor one. And as for tax provisions, they’re so notoriously unreliable cortrections have to be published.
So shall we get real? Estimates have been prepared and reported in good faith. Major international organisations now seem to think them pretty reliable – but not right – whoch no one has ever said they were – and that they do indicate that action is necxessarey. That is the sole purpose for their preparation. And, to a very large degree the fact that all those people have noticed does, and provided their own estimates, makes this debate irrelevant.
So, tell me, what is it about?
And who is funding it?
And why?
With what goal?
To what positive effect for well-being?
Because right now to me, and I ma sure a very great many others this looks remarkably like a rather pedantic corporate counter attack on a movement that is provin g far too successful in getting the right amount of tax paid in the right place at the rigth time.
Please assure me, with facts to back up the claims made, that it is not
Richard
Well, we’re back to the argument that we had when the two Christian Aid reports came out, at least six years ago. As Maya highlights, one is based on a single estimate by Baker, from a large but not statistically random number of interviews in the 1990s, that trade is mispriced by 7% between unaffiliated companies (mostly to create kickbacks), which is then applied to MNEs over a decade later to estimate mispricing for tax reasons by MNEs. The other, as she also references, is based on a use of a safe harbour annual interquartiles study by Pak to suggest that all trade outside those interquartiles is deliberately mispriced, a methodology which will report deliberate mispricing in any volatile commodity – you will remember I debunked one of the supposed large increases in mispricing by simply pointing out that it was accounted for by the volatility of the oil price in that year.
Chatham House rule allows reporting of what was said, but not of who said it at the meeting, but obviously Alex and I have different impressions of what WAS said. I’m sure, in both cases, it reflects our own starting points and selection bias. However, what I got from the first discussion was a general agreement that the methodology of the early estimates was not something that was thought to be defensible as anything other than a starting point for discussion. That ties in with other off the record (ie unattributable) discussions I have had with other tax campaigners, and indeed it is not far from what Christian Aid now says on its website.
I have never seen anyone defend, specifically and individually rather than by reference to other studies producing similar results, the methodology of using the Baker estimate and Pak’s safe harbour figures for the purposes they were used in those reports. Even you didn’t when you replied to my original article – I don’t know if you would care to try now? My recollection is that even Pak said to me that they highlighted areas for further investigation, not that they gave reliable estimates. To compare these methodologies with those for GDP etc is specious.
On the point of producing analysis which ends up supporting our own views, I think we all do that to some extent, in that the analysis tends to be a particular snapshot of our evolving views. I’m not sure, for example, that any of your research has ever shown that new-liberal capitalism has its good points… 😉 I know, and still remember, how shocked I was to realise the shaky basis of the Christian Aid research, which certainly changed my views, though not in the way it was intended to.
Mike
To describe you response as disappointing is to be kind to it.
Let me take your last paragraph first. It is true I have little love for neoliberal capitalism, but I have no love for a form of capitalism that seeks to undermine capitalism, concentrate power in the hands of a few, deny states the resources they need to meet the needs of the many and that is intended to create monopolies denying access for many to markets where they might create businesses that prosper and flourish. If you support a capitalism that does all those things – as neoliberal capitalism does – then say so and I will judge you accordingly.
But I do, very strongly believe in free markets (which are the antithesis of neoliberal capitalism, which is all about control). Indeed, I have argued that there is no more pro-business lobby than tax justice. We argue for the open data needed for free markets to exist. We argue for fair taxation, and no more. We argue that the state should supply business with highly trained, healthy employees who will be cared for if business fails. And we argue very strongly for property rights – including the right of the state to claim the tax that is its own.
I wrote a whole book – the Courageous State – on why it was the duty of the state to stand up to neoliberal capitalism to ensure that free markets could survive and people prosper within them.
I have shown my commitment to free markets. I was senior partner of a firm of accountants, and a director of a range of companies employing large numbers of people.
And you have noticed none of that? What can I say that doesn’t suggest your power of observation and analysis is based on the most extraordinary pre-disposition, and that in my case you have very clearly got me very wrong indeed. Unless you are, of course, supporting the neo-feudal and deeply oppressive state that the Pope so eloquently described recently. If that is what you are doing, I apologise, but am even more disappointed. Otherwise, it is you who has wholly missed the point through exercise of your prejudice.
As you do with your other comments where you seem to think that two old and now widely considered to be outdated papers somehow undermine the whole campaign for tax justice. I am staggered, but for the sake of doubt let me say where I am on this.
I was never wildly struck by Raymond Baker, his book or his estimates. I have told him so. It cost me a tidy sum: I lost grants for expressing my opinion. We have not spoken for some years. I place no store on his work now although at one time it was influential. I doubt if it is right. His focus on trade mispricing is, I think, from another era. His own solutions are naive. I consider him to be on the periphery of debate now. Why, in that case, focus on his work? Others (noted above, like the OECD) have now suggested the loss is in the range of ¢100 billion to ¢200 billion. In 2012 I had a World Bank peer review paper published showing that this loss was economically plausible, which is not the same as right. Pak did the same. And I am sure his paper was flawed (all estimates are, by definition). But it’s now history. It is no longer the necessary basis for claims.
So I would not suggest NGOs use it as support for claims, although Pak offered it in good faith. The fact is that there are better bases for making the same claim now. So the sum is not wrong, but the reason for the claim (i’d call it ¢150 billion as a spot estimate in a wide range, like all such things, if only you understood stats) has now changed.
And that’s it. Debate over. All you and Maya have now claimed can be said to be resolved. We no longer rely on that work. We no longer need to do so. And the problem remains of the scale suggested and the impact is as significant.
So what else do you now have to blame NGOs campaigning for on this issue? Unless that it’s that their claims disturb your prejudices?
Please explain.
And whilst your at it, please do address why you’ve been so willing to rely on so many much more dodgy stats, like HMRC’s ‘illustrative estimates’ of the shadow economy for which not a shred of evidence has ever been provided? I’d love to know, because your lack of credible suspicion has always undermined your position as a commentator as a result.
Best
Richard