Lobby fights tax evasion by multinationals in developing countries

BRISBANE, Australia

Tax policy lobbyists have stepped up pressure on the world’s richest nations to involve developing countries in a major operation that seeks to stop multinationals from dodging taxes in poor countries.

It is a step that the campaigners argue will help nations like Kenya to handle the perennial problem of dealing with firms that have registered subsidiaries in tax havens.

Ahead of the G20 summit in Brisbane, the activists gathered under an umbrella body of the Financial Transparency Coalition (FTC) to ask for tougher regulations against tax avoidance and shifting of profits by global conglomerates.

The G20 leaders’ meeting in Brisbane on Saturday and Sunday is expected to bring leaders of 20 countries controlling more than 80 per cent of the world’s wealth to discuss youth unemployment, global financial governance and reducing barriers to trade, among others.

But they are also expected to talk about tax avoidance for which their financial ministers have already agreed on the common reporting standard.

If it goes through, it will be a requirement that banks identify and report the tax affairs on non-residents to their home countries as well as force multinationals to report their accounts in countries of their operations.

Although this is noble, the proposal has two flaws.

DEVELOPING COUNTRIES LEFT OUT

Activists say developing countries, which host many of the multinationals but lose the most in dodged taxes, are not included.

In fact, the multinationals’ country-by-country reports will only be available to tax authorities, not publicly.

“What is required is a global regulation because Kenya cannot solve this problem alone. This will help authorities to access information from other countries as opposed to the situation now where a bilateral agreement is required,” Mr Alvin Mosioma, the executive director of Tax Justice Network Africa in Nairobi told the Nation.

The Network is part of the FTC which on Friday released a statement claiming the profit shifting, a concept where global companies underreport profits where taxes are high and over-report where taxes are low, costs developing countries $1 trillion a year.

All major scandals in Kenya have, in one way or another, involved companies with registered affiliates in tax havens. This shows the extent to which the problem must be dealt with now.

The arguments could ring a bell in Kenya. In June 2014, the Kenya Revenue Authority (KRA) revealed that a re-audit of 40 multinationals had "recovered" Sh25 billion in taxes from underreported profits.

The companies had used transfer pricing to declare losses, which effectively disqualified them from paying income tax. But KRA declined to reveal the names of the companies.

HUGE TAXES DODGED IN AFRICA

On Friday, Oxfam, a charity organisation, revealed that the amount of taxes dodged in Africa could be enough to strengthen weak health systems that have taken a beating from the threat of diseases.

“We want to see developing countries able to collect domestic resources that are due to them. We want to see the tax dodging end,” Oxfam Executive Director Winnie Byanyima told the Nation.

“What you are seeing now is consensus because there was a financial crisis in the northern economies. To solve it, they realised they were losing money because the very multinationals that dodge taxes in developing countries are also doing the same in their home countries by stashing the money in tax havens,” she added.

Tax avoidance is technically legal but companies must follow certain rules in reporting profits. Sometimes, they take advantage of bilateral agreements to lie about the source of profits.

The new effort to tame this is being spearheaded by the Organization for Economic Co-operation and Development (OECD), a grouping of more than 30 countries that discusses market economy policies for their members.

Earlier this year, they reached a deal called the Base Erosion and Profit Shifting Project (Beps).

OECD has since invited Kenya and a few other developing countries to take part in an "engagement" phase on the OECD’s Committee on Fiscal Affairs from next week. Activists say this is insufficient.

But Pascal Saint-Amans, the Director of Centre for Tax Policy and Administration at OECD told reporters on Friday that developing countries lack sufficient capacity to be roped in at once.

“A number of developing countries cannot currently collect information about their own taxpayers so how can they get information from elsewhere?

We need to help them because a lot of money is currently held offshore," he told a press conference.