AS THE EUROPEAN Council prepares to meet in Brussels later this week, a Europe-wide group of civil society organisations from 13 countries, including Ireland, are urging EU leaders to take action against tax dodging. Our report, published this week, ‘Giving with one hand and taking with the other: Europe’s role in tax-related capital flight from developing countries 2013‘, reviews the policies of governments across 13 European states on tax-related capital flight, and their impact on developing countries.
Capital flight costs Europe €1 trillion per year, and is estimated to cost developing countries between €660 and €870 billion, much of which is as a result of tax evasion and avoidance by multinational corporations. The amount of money given in aid to developing countries is therefore less than the revenue they lose through tax dodging. This unfairly lost finance could be used to provide vital services such as healthcare and education, the lack of which millions of people feel keenly around the world every day.
Tax evasion and tax avoidance involve practices where taxable profit is shifted around different tax jurisdictions or offshore centres around the world, to places that provide a veil of secrecy or facilitate tax avoidance.
Unfortunately, we do not have to look far for an example of such practices. In 2013 Ireland’s tax regime came under intense scrutiny when a US Senate Subcommittee pointed to global company Apple’s arrangement with the Irish government, under which it stated that Apple paid the Irish tax authorities a nominal rate far below Ireland’s statutory rate of 12.5 per cent.
In the 2014 budget, Minister Noonan indicated that from 2015 Ireland will no longer allow registered companies to be stateless in terms of their place of tax residency (as happened in the Apple case). However, this will not prevent companies engaging in tax dodging through schemes such as the so-called ‘Double Irish’ in order to minimise their corporate tax contributions.
Of the 13 EU governments surveyed in the report, none are demanding sufficient levels of tax transparency from global corporations. Not one government surveyed has demanded full country-by-country financial reporting from multinational companies.
Country-by-country reporting is essential to achieving transparency: it would require multinational corporations to provide a global overview of their companies along with a range of information for each country where they operate, including the names of all subsidiary companies and full tax information for each.
The report also finds that the majority of the governments reviewed are reluctant to establish publicly-accessible registers of the beneficial owners of companies, trusts and foundations that operate in each jurisdiction, that is, the actual, ‘flesh and blood’ owners. This simple move would make ownership transparent, and thus make it less easy for owners of businesses engaging in tax dodging to hide behind company names.
The report also points out that the information governments are exchanging with each other internationally on tax matters is rarely publicly accessible, which if rectified could increase transparency and public confidence.
Most worryingly for people living in developing countries, the report shows that all the governments surveyed support the rich-country-dominated-OECD over the UN as the leading decision-making body on international tax matters. This essentially excludes developing countries from equal participation in an area of international policy making that is robbing them of billions of euro each year.
Tax justice policies
In order to challenge this reality, the coalition of European organisations, including Debt and Development Coalition Ireland, recommend a number of steps. Among these is that all European governments should adopt full country-by-country reporting for all large companies; and EU-wide legislation for publicly accessible registries of the beneficial owners of companies, trusts or foundations. Governments, including Ireland, should also conduct analyses of the impact of their national tax policies on developing countries.
Critically for developing countries, we demand the establishment of an intergovernmental tax forum under the auspices of the UN to deal with this contested area of international policy. This forum should become the primary decision-making body on tax policy and ensure that developing countries can participate equally in the global reform of existing international tax rules.
Ireland: stepping up?
Where does Ireland stand on this international debate? The report shows that Ireland has indicated support for multilateral action on country-by-country financial reporting by companies and automatic information exchange, but does not advocate vocally enough in Europe in this regard. More damningly, Ireland does not support the idea of a public register of the beneficial owners of companies.
This lack of willingness to promote transparency is directly damaging to the domestic revenues of developing countries.
Ireland has a positive reputation internationally in the area of international development cooperation. Acting for tax justice is an issue of coherence in policy for Ireland: the government cannot give with one hand to developing countries while facilitating tax avoidance at the same time.
If Ireland is serious about identifying and preventing tax avoidance and evasion it should act now and show clear leadership on this range of issues and, in the Minister of Finance’s own words, become ‘part of the solution to th[e] global tax challenge, not part of the problem’. This week’s meeting in Brussels is a chance to put those fine words into action.
Morina O’Neill is policy officer with Debt and Development Coalition Ireland (DDCI). DDCI and Christian Aid Ireland are part of the European coalition which published the report ‘Giving with one hand and taking with the other: Europe’s role in tax-related capital flight from developing countries 2013’. The full report is available to here and a summary here. Follow DDCI on Facebook: www.facebook.com/DebtIreland or on Twitter @Debt_Ireland.
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