Have the Organisation for Economic Co-operation and Development and the G20 really attempted to “discredit and discourage” the participation of developing countries in a new system of automatic tax information exchange? That at least is the verdict of leading campaign group the Tax Justice Network, who recently published a report on the proposals, the full version of which was released on July 21.
Yet another case of poor countries being excluded and disadvantaged by a rich countries club, and global tax justice campaigners coming to their rescue?
Not this time.
While Automatic Information Exchange (AIE) may sound rather dry and technical, it is actually hugely important in the battle against tax evasion by transnational corporations and very wealthy people.
In principle, it means that tax authorities from participating countries will gain automatic access to each other’s data on companies or individual taxpayers. Once up and running, this will present a significant improvement to the existing system of information exchange “on request” which requires tax authorities to explain to each other, and for each request, exactly what kind of information they need on specific individuals or companies. In reality, very few requests are actually made since tax authorities rarely have even a basic level of information upon which they can formulate such requests.
As part of their evidence, the Tax Justice report’s authors firstly quote Pascal Saint-Amans, who heads the OECD’s tax activities, as saying: “Most (developing countries) are not yet ready and most of them don’t want [automatic information exchange].” Then they share survey findings which support their claim that developing countries are actually very eager to participate in automatic information exchange.
On closer inspection, however, the evidence is pretty flimsy. It’s based on eight responses to a questionnaire sent to tax authorities or other relevant people in 37 countries. Three respondents explicitly state that they are replying in their personal capacities, and not representing their governments, and only one of the responses was from what could technically be described as a Low Income Country (Uganda).
Making it happen
Over the past year there has been a great deal of movement towards agreement on a global AIE system. However, the system will initially include only the richer economies.
This is because the bulk of international economic transactions occur among high income countries where most tax avoidance and evasion is to be found. So it goes without saying that tax authorities from these countries have the most experience and are best equipped to challenge transnational tax avoidance, making it inevitable that any effective global AIE system should begin with them. Additionally, it should be no surprise that the OECD, whose membership is primarily made up of these richer countries, is taking the lead in organising this.
Having said this, the OECD has broadened its engagement by temporarily recruiting members of the G20 into its international tax reform discussions, which includes most of the leading non-OECD emerging powers, such as Argentina, Brazil, China, India, Indonesia, Russia, Saudi Arabia and South Africa. The OECD/G20 are operating under tight self-imposed time limits to make real progress in tax reform. This means that most low income countries, which are not so well organised and are also highly diverse in their tax affairs and concerns, will not be central to the decision-making over the exchange is being set up. Although some efforts have been made to consult them, this does not amount to effective participation in decision-making.
Poor countries missing out?
So is the Tax Justice Network right to assert that low income countries are losing out by being excluded from an institution that they need and want to join as soon as possible, according to their report? Or, alternatively, as I’ve heard many tax administrators from poorer countries claim, are these nations being disadvantaged because they will be dragged into joining a system created by richer and more influential states, a system which does not address their particular needs and concerns?
While these sound like polarised positions, they are actually quite complementary.
There is in practice a high degree of consensus among specialists. Whatever their affiliation, they tend to agree that:
• It is in everyone’s long-term interest, except tax evaders, that low income countries join in automatic information exchange.
• However, most low income countries are currently not ready for this because they do not have the required software systems and skilled staff.
• Investments need to be made to meet those gaps, with richer countries sharing the burden.
• As far as possible, various interim arrangements should be made to allow “unready” countries to share in at least some of the benefits of automatic information exchange. For example, some low income countries, especially the smaller ones, might be allowed to receive information from the system before they are in a position to contribute to it.
One thing is certain: there is great scope for compromise and for different developing countries to integrate into global automatic information exchange at different rates. These are not “do or die” policy issues that involve fundamental conflicts of ideology or interests.
It is not clear why the Tax Justice Network has published a report which gives a very different impression. While I am prepared to defend tax justice campaigners who have to play rough against powerful international organisations and corporations, I hesitate when I see the leading tax justice campaigning organisation publishing a report that artificially polarises opinion in an area where real progress is being made. On top of this, the report uses evidence that has little value, and opens with what will be widely seen as a personal attack on one of the leading officials responsible for the current international reforms. Credibility is a valuable resource, not to be cast away lightly.