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Developing countries’ access to CbCR: Guess who’s (not) coming to OECD dinner

It’s said that if you’re not at the table, you’re on the menu. Well, the OECD has just made available the list of activated relationships to automatically exchange country-by-country reports between countries. They use big figures like 700 relationships, but don’t get fooled by those numbers – simply look at the image below to see who really has access to CbCR.

Oh, by the way, there’s nothing wrong with your eye-sight. Developing countries are just not there…

phdskat cbcr relationships may17

Source: Rasmus Christensen (https://twitter.com/phdskat/status/860093952992608256?s=09), by kind permission

The problem is that instead of requiring a fully multilateral approach, the OECD has allowed bilateral relationships to the automatic exchange of CbCR. This makes it harder for more jurisdictions to exchange CbCR, and more costly to arrange – and in practice results in the exclusion of nearly all lower-income countries:

Some jurisdictions also continue to work towards agreeing bilateral competent authority agreements for the automatic exchange of CbC Reports with specific partners under Double Tax Conventions or Tax Information Exchange Agreements

Now, think of a major country that doesn’t appear on the image and is definitely choosing the bilateral approach when it comes to non-OECD countries. Hint 1:  its very many multinationals (MNEs) have aggressively pursued profit shifting, so that the misalignment of their global profits away from the locations of their real economic activity has gone from just 5% in the 1990s to more than 25% now. Hint 2: this country won’t be joining the CRS (the global framework for automatic exchange of banking information) either.

Estimates on illicit flows to and from developing countries

Our friends at Global Financial Integrity have released their latest report on what they estimate to be the latest figures from 150 countries on illicit financial flows to and from developing countries for the period 2005-2014. Most of these flows arise from fraudulent trade mis-invoicing which, as they point out, adversely affects the lives of real people:

“The massive flows of illicit capital shown in this study represent diversions of resources from their most efficient social uses in developing economies and are likely to adversely impact domestic resource mobilization and hamper sustainable economic growth.”

Flows

Interestingly, in addition to the estimated outflows GFI has looked at, this report also estimates illicit inflows to developing countries:

“Illicit inflows frequently occur when imports are under-invoiced for the purpose of evading customs duties and VAT taxes. The magnitude of estimated illicit inflows in the latest year (2014) ranges from $1.4 to $2.5 trillion. This large range reflects the fact that more precise calculations are difficult to make using available data.”

Do you want to know how much tax multinational companies pay?

Yes, so would we… And now there’s an action today on twitter which we can all take to help this become reality.

All EU banks have been obliged to report their profits and tax paid on a country by country basis since 2015. And not just to tax authorities behind closed doors, but publicly. Because of that we now know for example that “Europe’s 20 biggest banks are registering over a quarter of their profits in tax havens – well out of proportion to the level of real economic activity that occurs there.” We also now know that Barclays (the 5th biggest European bank) registered €557m of its profits in Luxembourg and paid only €1m in taxes in 2015 – an effective rate of 0.2%. You can read more on all this in Oxfam’s report Opening the Vaults: The use of tax havens by Europe’s biggest banks.

Bringing these facts into the daylight creates considerable pressure on governments to take action. But now we need to extend *public* country-by-country reporting urgently to all multinationals. It is unacceptable in the 21st century that multinational companies can continue to obscure the real contributions they make to the societies from where they make their profits.

President Trump visits La-La-Laffer Land

Inspired by Mad magazine

        Inspired by Mad magazine

Taken as a whole, the tax plans just announced by US President Donald Trump, which include abolition of the inheritance tax, could represent the largest tax cut for billionaires and millionaires in US history.  According to the President, this will stimulate growth and job creation.  There’s no evidence to support this; in fact the evidence suggests the exact opposite.

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