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RB tax avoidance – company calls for public country by country reporting after Oxfam report reveals profit shifting

Oxfam has today released a report on tax dodging by RB, the company formerly known as Reckitt Benckiser and the maker of thousands of well known household products.

The report looks at the 2012 restructuring of the company which saw it set up ‘hubs’ in the Netherlands, Dubai and Singapore, all well known corporate tax havens, and demonstrates the continuing power of the corporate expose as a mechanism for encouraging companies to change their ways. As a result of Oxfam’s work, RB itself is now calling on governments around the world to legislate to compel all multinationals to be transparent about the tax they pay though country by country reporting of key financial data.

Half measures mean Mauritius will continue to be a tax haven for the developing world

July 12, 2017   Africa, Blog, Tax Havens, Tax Treaties

There was news this week that Mauritius has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). This is an initiative from the OECD to allow countries to take measures designed to stop tax avoidance by multinational companies and put them into their existing network of tax treaties without renegotiating those treaties.

This is a particularly important measure for a countries like Mauritius. Mauritius has a wide network of tax treaties with African and South Asian countries allowing it to act as a conduit for capital to slip tax freely between the West and the developing world. This is commonly called treaty shopping.

So, the signing of the MLI by Mauritius should be seen as good news. Well, not quite. The MLI does not change the relationship between the signatory and all other countries that have a tax treaty with the signatory. Jurisdictions which are not part of the MLI are not included, and even within the MLI jurisdictions can chose not to modify tax treaties with others in the system. This happens through the publication of each country’s ‘preferences’.

A closer look at Mauritius’s ‘preferences’ shows that a number of vitally important treaty relationships are not covered by the jurisdiction joining the MLI, leaving a number of developing countries vulnerable to companies using Mauritius to shift profits in an attempt to avoid tax.

We have been through the list of Mauritius’s ‘preferences’ in the MLI and Mauritius’s existing treaty network. The jurisdictions which currently have a treaty relationship with Mauritius but are not covered by the MLI are as follows:

Australia Botswana Egypt
India Malaysia Mozambique
Namibia Nepal Pakistan
Bangladesh China Rwanda
Senegal Singapore Sri Lanka
Thailand Tunisia Uganda
Zambia Zimbabwe

Countries which are not covered by the MLI or do not match in terms of these preferences have to renegotiate their treaties on a bilateral basis to include clauses which prevent the tax abuse. Here things can get complicated too, as there are a range of anti-avoidance measures available to countries, some better than others. In one key area – the anti-treaty abuse rule – an effective option is to apply a “principle purpose test”. (PPT) This test denies the benefits of a tax treaty if one of the principle purposes of a transaction was to gain that treaty benefit. Mauritius has accepted this test as an interim measure in the countries it will implement the MLI with.

However, in bi-lateral negotiations it has said it prefers the limitation of benefit rule, which applies a large number of more technical criteria to the parties completing a transaction and denies treaty benefits to parties which do not meet those tests. Those tests can be a local ownership requirement, for example.

A limitation of benefits rule is much more complicated to administer than than a PPT test, which causes difficulties for developing countries.

Finally, through the MLI system a country does not need to implement all of the anti-avoidance provisions which form part of the MLI. As well as choosing which countries the MLI applies to, a contracting party can also express reservations on specific policy areas which it does not want to implement. Mauritius has a great deal of reservations about MLI provisions, including on measures such as strengthening capital gains tax from the sale of participations in domestic companies (article 9), the transfer of dividends (article 8), and provisions to prevent tax abuse of income from permanent establishments in third countries (article 10), and the artificial avoidance of permanent establishment status (articles 12 and 13).

So whilst Mauritius (and others) may celebrate the signing of the MLI as a great work of spin for this tax haven island, the weakness of the system still allows this jurisdiction to create significant problems for its neighbours in Africa and South Asia.

EU Parliament multinational transparency vote introduces ‘commercial confidentiality’ loophole

June 13, 2017   Blog, Country by Country

Yesterday the European Parliament held a crucial tax justice vote on making multinational companies with an annual net turnover of 750 million euros and above publicly report their activities, structures and tax payments on a country-by-country basis. That would mean no more secrecy around those things that affect the welfare of you, me and the rest of the world on a daily basis. It would mean the end of the outrageous secret deals done with governments behind closed doors. Each country would know how much tax a multinational company contributes to their Treasuries. As they say, sunlight is the best disinfectant.

At TJN we have fought a long campaign on this issue, joined by many friends in the tax justice movement. When TJN first floated this idea along with Richard Murphy it was laughed at. Now we’re moving closer and closer to it. But we’re not there yet.

You can read more on the benefits of public country-by-country reporting here. And here’s why this issue is so important:

New multilateral instrument to limit damage done by tax treaties

June 7, 2017   Blog, Tax Treaties

Today sees the signing ceremony of a new multilateral instrument (MLI) to limit the extent to which bilateral tax treaties create the conditions for large-scale multinational tax avoidance. The OECD’s Pascal Saint-Amans told the Financial Times (£) that “treaty shopping will be killed”. Treaty shopping describes the practice of multi-national companies in comparing and selecting which jurisdictions offer them treaties with the greatest possibilities for minimising their tax bills and maximising other sweeteners, thereby pitting one nation against another, driving a race to the bottom that harms everyone. It allows them to route investments through third countries to acquire the protection of investment treaties that investors would not otherwise have in their home state jurisdiction.

Deloitte’s Bill Dodwell called this new multilateral instrument “a big deal”, predicting that companies would see tax rises of 8-10%. The Financial Times article quotes our Alex Cobham who welcomes it while expressing some caution. Here’s the full statement:

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