Tuesday 24 January 2017

Davos 2017: Efforts to tackle tax avoidance on the agenda

At the World Economic Forum in Davos last week, the subject of tax was once again on the agenda. Whether it was Oxfam, the OECD or Theresa May, efforts to tackle tax avoidance were under scrutiny. With the UK wedded to having the lowest tax rate in the G20, and President Trump promising to dramatically cut US taxes, claims that there is a “race to the bottom” seem ever more believable. However, opinions remain divided as to whether this is a good or a bad thing.

The tax debate has come a long way in the last few years, but frustrations remain that what should be common ground around terminology and matters of fact gets muddied. In the long run, this is counter productive for all.


Oxfam

Oxfam International executive director Winnie Byanyima spoke on a panel on multinational tax policy and challenged world leaders to do more in the fight to make multinationals pay their “fair share”. She was critical of governments lowering tax rates in order to attract businesses.
“It’s worrying now. We’ve seen the promise from President-elect Trump to cut corporate tax.”

She also criticised Theresa May’s Lancaster House speech which seemed to imply that the UK might become a tax haven if it doesn’t get its way on Brexit. “These are steps in the wrong direction. This year we need to see progress on this corporate tax competition.”

She them talked about the Oxfam report suggesting that eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity.*

Theresa May

In the space of two days Theresa May went from suggesting the UK might adopt “competitive tax rates” to saying that companies must share the benefits of globalisation by paying a fair amount of tax.

“It means playing by the same rules as everyone else when it comes to tax and behaviour,” said May.

“It means businesses paying their fair share of tax, recognising their obligations and duties to their employees and supply chains, and trading in the right way; companies genuinely investing in – and becoming part of – the communities and nations in which they operate, and abiding by the responsibilities that implies.”

Jeroen Dijsselbloem, Dutch finance minister was asked by the Financial Times what he thought about the UK considering becoming a tax haven. He said that he thinks it is very damaging, and that those who voted Leave did not expect that to mean the UK having a very multinational-friendly tax regime. "Let's not go there," he said. He thinks the UK people want a fair tax system where big companies pay taxes.

OECD

Meanwhile, Angel Gurria, Secretary General of the OECD stressed that transparency of beneficial ownership remains a key area for further progress in tackling tax evasion. “A dramatic transformation of the international tax regime is taking place and we have to cash in on the global momentum against tax evasion,” said Gurria.


What is clear is that the debate about tax competition is going to be an important one in 2017. Whether it is driven by President Trump, Brexit or the work of the OECD or EU, “fair tax” is going to keep getting headlines. There remains an issue with the bundling or fraud, evasion, avoidance and planning under a single heading of "tax dodging". There is also a potential issue with the mix of multilateral and unilateral efforts to tackle aggressive tax avoidance, particularly when some of those unilateral efforts seem to be about tax competition. There appear to be more moving pieces than ever. More still needs to be done to address this complexity.

What is interesting though is that the focus is shifting. It is not just multinational businesses in the firing line now, or off-shore financial centres. It is two of the G7.


* This Oxfam report has faced considerable criticism over the methodology used to generate this result. For example, critics suggest that including highly qualified university graduates with student debt in the "poorest half of humanity" is misleading.

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