G20 tax and transparency rules must work for everyone

If the voices of developing countries are not heard, the risk is that the OECD tax project will benefit only powerful economies
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David Cameron
The G20 summit in St Petersburg, Russia, during which world leaders, including David Cameron, discussed the need for a tax overhaul. Photograph: Ivan Sekretarev/AP

If we compare G20 leaders' latest statement on tax and transparency with what they were saying just two years ago, then the situation today looks encouraging.

G20 countries have finally accepted the need for major reforms on, which tax justice and anti-corruption groups have campaigned for years. They have endorsed the idea that countries should exchange information to catch evaders who hide their money outside the country where they owe tax.

This week's G20 summit in St Petersburg, Russia, also acknowledged that "developing countries must reap the benefits of the G20 tax agenda", including work to stop rampant tax dodging by multinationals.

So far, so good. The catch is that despite the warm words of the declaration, the reforms the G20 backed look likely to benefit only rich and emerging economies.

Despite their strong statements about the importance of developing countries getting their fair share of tax, when it comes to assigning decision-making power, political leaders suddenly develop amnesia.

International negotiations on how to stop multinationals systematically dodging tax are being led by the rich countries' club, the OECD, which published an action plan in July. So far, poor countries have, in effect, been excluded.

Yet they are haemorrhaging $160bn a year as a result of multinational companies dodging tax – far more than they receive in aid. This has devastating consequences for public services such as schools, hospitals and roads – and the millions of people who need them.

Nor has the G20 tried to strengthen the important but under-funded UN tax committee, which is expected to help developing countries participate in the OECD-led talks, but clearly lacks the resources to play that role effectively.

If the voices of developing countries are not heard, the risk is that the OECD project will only benefit more powerful economies. Poor countries, which have a far more unequal struggle against multinationals' destructive "tax planning", will be left out in the cold.

The same is true with plans to get countries to exchange tax information automatically. After years of resistance to demands from campaigners, including the Tax Justice Network and Christian Aid, the G20 seems committed to make this happen sooner rather than later.

It is welcome – but again, rich countries seem tempted to exclude developing countries from progress, with the excuse that they are unable to make effective use of the information they would get from other countries.

Of course many poor countries will need capacity building, but some are more than ready to reasonably comply with all the requirements – and thus also enjoy the benefits – from the outset. The G20 should urgently reconsider its approach here.

Tax and transparency campaigners are also disappointed on other matters. The St Petersburg summit could have built on the progress made at the G8 in June, with decisive steps to stop tax evaders hiding behind shell companies.

If we want to catch and deter tax evaders, and also corrupt officials and other criminals, then we must know who really owns companies, foundations and trusts. The near-silence from the G20 on this matter leaves it to the UK government to lead the way toward the public disclosure of beneficial owners.

If David Cameron was serious about his rousing statements on trade, tax and transparency when he chaired the G8 summit in Lough Erne, he now needs to deliver, knowing that what the UK does will influence the rest of the world. The UK's consultation on whether to make public its new register of beneficial (real) owners ends on 16 September.

The G20 has also done little to improve transparency around multinationals' finances. Getting companies to tell tax authorities about their profits earned and taxes paid in each country where they operate is welcome but insufficient. Many others, including investors and customers, also have the right to know whether companies are paying their fair share of tax.

Crucially, for this to happen, multinationals must be required to publish in their annual reports what profits they earn where and how much taxes they pay, separately for every country in which they work.

Sixty-five years after the Universal Declaration of Human Rights, we continue to see how millions of women, men and children in rich and poor countries are deprived of fundamental human rights, including those to food, health and education.

To end poverty and tackle inequality, tax and transparency rules must work for everyone. And as Kofi Annan has said recently, developing countries have lost their tolerance for being exploited by the rest of the world.

Alex Prats is principal economic justice adviser at Christian Aid

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