TJN Research & Advocacy
The Tax Justice Network is a research and advocacy organisation committed to change in a wide area of fields. We pursue all of them, but with varying degrees of commitment. This section provides an overview of some of the most important areas being pursued by TJN-international (some of our national-level programmes and partner organisations are working on other, or overlapping areas.) The "Core Programmes" section highlights our active priorities; this is followed by another section called "Other Themes of Interest" which we are engaged with, but currently with relatively less activity.
TJN welcomes support and engagement on all of these, from a wide variety of partners.
CORE PROGRAMMES (see below for details)
- Transfer Pricing Project
- Intergovernmental co-operation
- EU savings tax directive
- Country-by-Country reporting.
- A UN Code of Conduct on Tax Evasion
- A TJN Code of Conduct on Taxation
- Financial Transparency Index
- Mapping the Faultlines
- Plato Index
- Tax Systems for Poverty Reduction
OTHER THEMES OF INTEREST
- Tax competition
- Source and Residence Taxation
- Tax and Corporate Social Responsibility
- UK Domicile
- Tax and state-building
- Partner campaigns
Details of these are provided below (April 2008: this section remains incomplete.)
Tax systems for poverty reduction
In association with international and national partner organisations, TJN is implementing a programme to raise awareness and activity among civil society actors about the role of tax in promoting pro-poor growth, democratisation, financing public services and reducing social inequalities in developing countries. This is part of a larger programme through which the Department for International Development (DFID) will also support the activities of the International Tax Dialogue and international learning events.
Tax is unique in creating a direct bond between citizens and the states where they live. By building awareness of this link, the programme aims to increase demands for effective tax systems from citizens and civil societies in developing countries. The publications, educational materials and workships included in this component will build on current TJN pilots in Eastern and Southern Africa, while broadening TJN engagement to cover more countries in Africa, the Middle East, South Asia and Latin America. Initial reports are available on Ghana and Kenya, and the full terms of reference can be seen here.
Transfer Pricing Project
June 30, 2009. The Tax Justice Network is launching a new project on transfer pricing and mispricing. This is an issue of paramount importance: estimates by Global Financial Integrity, Christian Aid and others show that hundreds of billions of dollars are estimated to be shifted out of developing countries each year by this method alone. It is also a major problem for developed countries, as multinationals use transfer mispricing to shift income to low tax or no tax jurisdictions. A TJN transfer pricing web page, with links to expert reports and concise summaries, is now available here.
This major new project will be led by some of the world’s experts in this field, and before too long we will be seeking to produce substantive materials on this subject as a basis for further work and discussion. The transfer pricing project will complement an ongoing campaign by TJN and other organizations and governments in favor of country-by-country reporting. It will, among other things, look at the potential for a radically different taxation model, via unitary taxation / combined reporting / formulary apportionment (see more here .) Currently we have several individual experts who have made commitments to getting involved in this project, and we have made initial contact with organisations who may be interested in taking part in this crucial issue.
Individuals and organisations are welcome to participate. Please contact TJN if you would like to be involved in this ground-breaking initiative. info (at) taxjustice.net
The international financial architecture must be redesigned. Many changes are required, but among the most important are measures to stem capital flight and illicit capital flows, especially from developing countries. The World Bank has estimated the cross-border flow of proceeds from criminal activity, corruption and tax evasion at between one and 1.6 trillion US dollars per year: half of it – or $500-800 billion -- from developing and transition economies. This compares to total annual foreign aid commitments worldwide of around $100 billion. Research published in 2008 estimated more than $600 billion in accumulated capital flight from 40 African countries; this compares with “only” $227 billion in these countries’ external debts. Tax evasion is a primary reason for capital flight and illicit cross-border flows: tax-evading flows make up more than 60 percent of the $1-1.6 trillion.
Action on international taxation must, therefore, be central to any efforts to tackle capital flight and illicit financial flows. Currently, capital flows almost without restrictions across international borders, but national tax authorities -- and the forces of law and order -- are generally unable to “see” that capital once it has left the home jurisdiction. This is especially true of secrecy jurisdictions like Jersey, Switzerland and the Cayman Islands, but it is also true of more traditional financial centres like the London and New York.
Achieving change will require very large injections of new political will. The IMF, the Organisation for Economic Cooperation and Development (OECD) and the United Nations are bodies mandated to address these issues. The main (but not the only) tool for tackling this problem is transparency, which requires international co-operation. Information on tax and other matters should be exchanged automatically across borders, on a multilateral, worldwide basis. (See this 2009 briefing paper) This is one of TJN’s end goals: this alone could achieve more in the battle against global poverty than all foreign aid combined -- and would also enable the forces of law and order to crack down seriously on crime, corruption, terrorist finance – and many other global scourges. (Corporate transparency, which would address revenue losses worth hundreds of billions of dollars per year, is also essential.)
The UN, and others, increasingly recognise the importance of developing countries mobilising their own domestic resources for development. That means tax. In 2001 a high-level UN panel on on Financing for Development, in a document known as the Zedillo Report, said that "globalisation has progressively undermined the territoriality principle on which traditional tax codes are based. Developing countries would stand to benefit especially from technical assistance in tax administration, [and] tax information sharing that permits the taxation of flight capital.” A follow-up conference in Monterrey, Mexico in 2002, built on this; the subsequent “Monterrey Consensus ” encouraged, among other things, stronger international tax cooperation and co-ordination between and among multilateral and regional bodies, with special attention to developing countries and countries with economies in transition.
In December 2007 the UN General Assembly resolved to hold a “Follow-up International Conference on Financing for Development to Review the Implementation of the Monterrey Consensus” to be held in Doha, Qatar, from November 29 to December 2 2008. Many heads of state and of government attended, and the outcomes will be a reference point for international development in the coming years.
TJN is seeking to promote progress in four main areas: first, finding ways to improve exchange of tax information between governments; second, strengthening tax administration and enforcement in developing countries; third, having tax evasion treated as corruption, money laundering and as a suspicious activity in relevant forums such as in international anti-corruption laws and treaties. Fourth, supporting a forthcoming UN Code of Conduct on tax evasion, which needs strong support in the face of efforts by large vested interests to water down or eliminate it from the UN’s agenda.
TJN is collaborating with the group New Rules for Global Finance , and the UN Development Programme, in a unique project to help developing countries share successful tax practices, at a national, regional and international level. It will result in a series of high-level meetings involving some of the top tax officials from major developing country governments. More details on this project, entitled "Sharing Successful Practices and Building Mechanisms for Mobilizing Domestic Resources for Inclusive Development", can be found on page 11 of the first 2008 edition of Tax Justice Focus.
TJN briefly outlined some of its broadest goals in this March 2008 comment piece in the Financial Times.
The April 2008 edition of our quarterly newsletter Tax Justice Focus is the Doha edition. Pages 1-2 contain an article by Mike McIntyre, who is preparing a draft for a forthcoming UN Code of Conduct on taxation. Pages 7-8 provide an overview of the relevant issues in the Doha process, and contains some detailed proposals for further action.
The European Union Savings Tax Directive
The section above (“The Road to Doha”) explains the crucial importance of transparency in international finance, and specifically the need for automatic exchange of tax information between national tax authorities on a multilateral basis. There is currently no global, multilateral scheme to achieve this. There is, however, a more limited scheme for automatic exchange of information between countries: the European Savings Tax Directive (EU STD).
All EU member states, and a few others, are party to the EU STD, which was set up to combat tax evasion and other problems. If a resident of one country within the scheme has interest income in another country within the scheme, details of that income is sent automatically to the resident’s home state, each year. That state can then tax that resident's income appropriately. While the EU’s scheme is severely hampered by major loopholes (inserted as a result of heavy lobbying from regional vested interests), it is still vastly superior to other schemes on information exchange (such as the OECD’s model tax treaty, which operates on a bilateral, rather than a multilateral, basis: very few developing countries, for example, use these treaties, and exchange of tax information is only on request, rather than automatic. (see FT comment)
TJN would like to see progress in three main areas. First, the EU STD contains major loopholes that have dramatically reduced its effectiveness: these need to be closed. Second, the EU STD needs to be extended to include other countries. (India, South Africa, or Brazil might be good candidates to start with, in terms of extending the STD. Third, dialogue is required between the EU, on the one hand, and the UN and the OECD, on the other, about how extension of the EU STD to other countries might practically work in parallel with the global initiatives on information exchange.
This March 2008 TJN briefing paper gives more details about the EU STD. In addition, this March 2008 Tax Justice blog contains more information about the political background.
What you can do
The Liechtenstein scandal in early 2008 has provided fresh political will in Europe for reform of the EU STD, and it is now urgent that civil society groups in Europe – which have been largely absent from debates on the EU STD to date – start to engage. TJN wishes to work with interested actors from civil society, business and elsewhere, in pushing the agenda forwards. For more information, contact info (at) taxjustice.net
Country by Country reporting
TJN is pushing for a simple, low-cost change in international financial reporting standards for corporations that would dramatically increase transparency in global finance.
The essence of the problem with company reporting is straightforward. Under current reporting standards widely accepted around the globe, companies need not break down their accounts according to the countries where they operate. They can instead consolidate all the separate numbers for each country where they operate, and publish them in a broader geographical segment, leading to, for example, a single profit figure for "Africa." The individual African countries' tax authorities where that multinational operates cannot unpick that "segment" (as it is known) and find out the company's local profits; the people of those countries cannot use them to find out what financial flows may be occurring between them and their leaders. Sometimes they can't even work out who really owns the companies operating in their terrritory. Country by country reporting - applied as international financial reporting standards - would simply require companies to unpick their accounts for each country where they operate. No single legislative measure would do more to make multinational corporations (MNCs) more transparent, and its costs would be negligible when compared to the dividends for the citizens of rich and poor countries.
TJN published a briefing paper in March 2008 on country-by-country reporting, outlining the main technical and other issues. Some of the most important political background can be read about here. Please also see this Tax Justice blog for a summary of some of the main issues involved.
What can you do
TJN welcomes partnerships with other organisations interested in pushing this initiative forwards. For more details, contact info (at) taxjustice.net.
A UN code of conduct on tax evasion
In 2006, the United Nations Tax Committee voted to approve in principle a code of conduct for international co-operation on taxation. It will probably be known as the United Nations Code of Conduct on Cooperation in Combating International Tax Evasion. A UN Code of Conduct would set minimum standards for countries on co-operation on measures to combat capital flight and international tax evasion and abusive tax avoidance.
Codes of conduct are sometimes referred to as “soft law” because they do not provide for explicit methods of enforcement: they rely on persuasion, rather than legal force. But they play a vital role in mobilising political support for change among a variety of relevant actors. There is currently no global code of conduct of its kind.
To have maximum impact, a Code of Conduct should be adopted by the UN General Assembly. Several steps must be put in place first, however. Some useful progress in this respect might be made in the context of the Doha conference, described above. TJN believes that it is essential for a forthcoming Code of Conduct to be supported in relevant forums, partly in order to counteract lobbying by powerful vested interests who will undoubtedly seek to water it down or neutralise it entirely.
The United Nations Tax Committee has asked Professor Michael J. McIntyre to prepare a draft UN code of conduct. Read his concise summary of the issues on pages 1-2 of the April 2008 edition of TJN’s quarterly newsletter, Tax Justice Focus. For more information on how to help support the process for a forthcoming UN Code of Conduct, contact info (at) taxjustice.net.
The Tax Justice Network Code of Conduct for Taxation
Tax is the bedrock on which democratic society is built. Yet tax is under threat. Governments compete with each other to attract transient income from capital. In the process, they actively undermine the integrity of each others’ tax systems. Many of the brightest legal and accounting brains in the world are dedicated to facilitating this process either by designing the structures that these governments enact, or by providing arguments in favouring their adoption.?? There is now a pressing need for a Code of Conduct. This seeks to redress the problems that have resulted from this combination of circumstances. The Tax Justice Network published a Code of Conduct, formulated by its senior adviser Richard Murphy, in October 2007. (It is analytically separate from a forthcoming UN Code of Conduct on Tax Evasion, described above.) The TJN Code of Conduct is aimed at:
- Governments and their agencies
- Taxpayers (individuals and corporations)
- Tax agents (such as tax accountants, lawyers etc.
The Code of Conduct is just two pages long. If it does no more than promote principles as being at the centre of the debate on taxation, it will be important. We hope it will do more than that.
The TJN Code of Conduct itself, which is just two pages long, is available here. The supporting arguments, which are contained in a longer document, can be found here. TJN senior adviser Richard Murphy also provides a brief introductory explanation here.
What you can do
This Code of Conduct is intended to stimulate and discussion. Please promote it where possible, and please refer to it when considering relevant work in the field of international taxation. TJN also welcomes comments and suggestions. For more information, please contact info (at) taxjustice.net
Financial Transparency Index
Many of the world’s big development institutions suffer from a kind of blindness with respect to corruption. They define it too narrowly, and especially they ignore the role of the offshore financial system in encouraging and facilitating capital flight and tax evasion. Secrecy and corruption are symbiotic; tax havens, by offering secrecy, foster corruption and must be brought to the centre of the corruption debate.
TJN has previously published major criticisms of the world's most famous corruption index, the Corruption Perceptions Index (CPI) published annually by Berlin-based Transparency International. Over half of the countries ranked in the “least corrupt” quintile of the CPI are offshore tax havens, for example. The big analytical error in this (and other) corruption indices is this: they split the problem of corruption into discrete units of analysis. In doing so, these indices entirely ignore the global systemic problem: that one country’s secrecy and tax haven (and other) policies harm other countries. Once we look at corruption on a global level, rather than on a national level, we will begin to entirely re-shape the geography of corruption and start to understand properly what corruption is, how it comes about, and develop better tools to tackle it.
TJN is now working with Transparency International for the formulation of a new index, to be called the Financial Transparency Index (FTI). The purpose of the FTI is to highlight how secrecy jurisdictions furnish a supply side environment which induces illicit financial flows and related tax evasion. The project is being substantially funded by Christian Aid; more funding is currently being sought. A significant amount of the information needed will be derived from a separate TJN project called Mapping the Faultlines (see below.) The FTI will rank jurisdictions according to their usefulness to the perpetrators of illicit financial flows and abusive tax practices. This is a large project requiring significant research resources; we expect a first version of the index to be published in 2009.
For more information about the need to redefine corruption, see TJN's main section on corruption, which provides links to several other important documents. A Janaury 2008 research proposal provides more background to the research, and describes the methodology. For more information, contact info (at) taxjustice.net
Mapping the Faultlines
The Tax Justice Network, in partnership with the Global Financial Integrity (GFI) program in Washington, DC, is undertaking a major study called Mapping the Faultlines, with support from the Ford Foundation.
The goal of the study is to describe the mechanisms and jurisdictions facilitating flows of illicit money across borders. One outcome from the study will be a large, publicly available database on tax havens and tax mechanisms, which will be updated and amended over time by the expert team as the infrastructure of global illicit financial flows evolves. First results from this major study will not be published before 2009 at the earliest. Some of the data will also be used in the Financial Transparency Index project, in partnership with Transparency International.
The aim is to produce an analysis that will be the most far-reaching and accurate examination of the phenomenon to date. GFI’s comprehensive research effort will look at magnitudes: it will provide ranges of the volume of capital flowing into specific jurisdictions. TJN will explore and describe the mechanisms and jurisdictions facilitating these flows.
International databases on tax, allowing comparisons between countries and over time, are inadequate – especially with respect to developing countries. The World Bank, the IMF, and others, do have some information – but all of the publicly available data is incomplete. Much of what is publicly available is also out of date, or prohibitvely expensive to obtain. This is an astonishing gap, given how important such data is to researchers on international development and others.
One of the most notable gaps is in information about how tax burdens are distributed between different sections of national populations. Comparisons of tax burdens that inform discussions of tax policy generally use GDP (or GNP) as the denominator. The distributional incidence (or ‘progressivity’) of tax systems is generally not compared, nor is the effective income base for direct taxation identified.
Professor Edmund Valpy Fitzgerald, Director of Queen Elizabeth House at Oxford University and a Senior Adviser to TJN, is preparing a research project (with the involvement of TJN’s John Christensen) to produce a Plato Index, which will use a straightforward method to compare direct tax incidence, enabling robust comparisons between countries and over time. This is a large research project which will not only produce an index as an end product, but also important new tax database information.
For more details, please see Professor Valpy Fitzgerald’s article with John Roche on page six of this 2009 edition of TJN's newsletter, Tax Justice Focus. Also see this 2006 presentation on proposals for a Plato Index and Valpy Fitzgerald's July 2008 AABA research workshop paper.
OTHER THEMES OF INTEREST
This section is under construction. In the meantime, please see this TJN section on tax competition.
Source and Residence Taxation
This section is under construction. In the meantime, please see this TJN briefing paper on Source- and Residence- taxation.
This section is under construction. In the meantime, please see this TJN section on corruption, and see the section on the Financial Transparency Index, above. This recent long article in The American Interest sets out some of the key issues. Also see John Christensen’s paper, Mirror, Mirror, on the Wall: Who’s the Most Corrupt of All?, discusses these issues in more detail. Also, Richard Murphy and Nicholas Shaxson, in a comment piece in the Financial Times, discuss the Extractive Industries Transparency Initiative (EITI), and how the misplaced ideologies of corruption that are currently prevalent have led us down the wrong path in the quest for transparency in natural resource sectors.
This section is under construction. In the meantime, please see Richard Murphy's regular writings about domicile, in his Tax Research blog.
Tax and state-building
Tax and Corporate Social and Economic Responsibility
TJN launched its corporate responsibility and accountability programme in March 2004. Our starting position is that paying tax is perhaps the most fundamental way in which corporations engage with their host societies, and in some cases might be the principal element of their economic footprint. As John Christensen and Richard Murphy argue in Development (September 2004) the corporate responsibility debate has scarcely discussed economic impacts, let alone considered tax obligations, the use of tax avoidance strategies, and the promotion of tax competition on the governments of developing countries. In the report Taxing Issues: Responsible Business and tax consulting firm and think tank SustainAbilityfinds almost no evidence that companies have looked at tax planning through a corporate responsibility lens. Sustainability's report explores the arguments for and against including corporate tax policies in the corporate responsibility agenda and offers guidelines for how this might be achieved.
Responsible policies on tax should acknowledge that tax planning can carry material risks which are relevant to shareholder interests. The Financial Times writes that national tax authorities are cooperating to tackle corporate tax avoidance and the boundaries between evasion and avoidance are eroding. According to accounting and tax consulting firm KPMG perceptions about tax risk are shifting from purely technical issues into the realms of ethics and corporate governance. KPMG acknowledge that the Tax Justice Network has played a part in shifting the debate away from technical issues towards broader social and ethical concerns. The risks involved in tax planning have increased and therefore responsibility for these risks should lie with the Board of Directors rather than with tax specialists. This issue is explored in Tax, risk and corporate governance, a report by investment managers Henderson Global Investors.
The above are by no means an exhaustive list of issues that TJN is engaged with. Several other issues merit serious attention; there are certain issues - such as in the field of unitary taxation, currency and financial transaction taxes (see here, for example), land value taxes - where other organisations are actively involved, and which TJN supports, though without (currently) very actively engaging in research or advocacy.