G20's opportunity to nail multinational tax dodgers

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Financial Review front page on Ikea's tax free profits

Thursday’s Financial Review reported that Swedish furniture company IKEA’s Australian arm has earned an estimated $1 billion in profits since 2003, almost all of which has been exported tax-free. 

Ikea is not alone among multinational corporations that seem to have found a way to defy Benjamin Franklin’s famous assertion that we can only be certain of death and taxes. Others include Google, Facebook, Apple, Amazon, and Starbucks.

Using a variety of legal but questionable or difficult-to-trace methods, multinational companies are often able to avoid tax on large parts of their business activities.

However the problem is not confined to just a few mostly tech giants. Many multinational mining, forestry, agriculture and even consumer-goods companies are coming under increasing scrutiny for the artificial structures and transactions they have created for the purpose of avoiding tax.  

Sadly, as with any form of corruption or unethical behaviour, it is the world’s poorest who end up suffering the most. Christian Aid estimates that in 2008, developing countries lost more than USD 160 billion through just two forms of multinational corporate tax dodging. This conservative estimate dwarfs what that these countries receive in aid, which amounted to USD 120 billion in 2009.

When translated from dollars into lives saved, developing countries could spare the lives of around 350,000 children each year if they had access to these lost revenues.

We also know from estimates provided by the United Nations that every USD 100 million recovered from tax dodging and corruption could fund full immunisations for four million children, provide water connections for some 250,000 households, or fund treatment for over 600,000 people with HIV/AIDS for a full year. 

The reality is that tax is the primary source of income for developing nations to provide essential services to their citizens – services we all need, like health care, education, aged care, clean water and roads. When multinational companies and wealthy individuals avoid paying taxes, everyone else (including the poor) have to either pay more tax or go without essential services. 

The impact on developing countries is devastating, denying them the money they need to be self-sufficient and making them dependent on aid and debt. This truly becomes the case of the rich getting richer while the poor miss out.

Beyond the actions of multinational corporations, though, it is clear that the global tax rules need to be changed. It is the global rules which make it possible, and even seem desirable, for multinational corporations to find and exploit mismatches in national laws, facilitate unhelpful tax 'competition' between nations, and seek out the secrecy of tax havens in order to reduce their tax bill. 

Fortunately, the world’s most powerful economies, including our own, have awoken to the immense problem multinational tax dodging presents for their own national incomes, and are now taking positive steps in this area to prevent it.

When the G20 leaders meet in Brisbane next week, action to crack down on tax avoidance and improve transparency in the global financial system is on the agenda. 

Whilst this is good news, any concrete steps made will only help developing nations if their interests are represented around the table. Too often they are neglected in favour of those of the most wealthy countries.

The recent release of a global standard for automatic exchange of information is an example of a positive step in the right direction. Yet it’s one that could exclude developing nations from its benefits.

The new standard will allow countries to more easily identify when their citizens are making investments or moving money into other countries. Yet developing countries will find it especially difficult to implement the multilateral standard, as it demands reciprocity and data-handling standards designed for the world’s best-resourced tax authorities.

In other words, they will only be able to access information if they themselves collect information and commit to send it to other countries. If this seems like difficult task for the Australian Tax Office, imagine how an under-resourced and over-stretched tax authority in a developing country will fare. The G20 has emphasised that it intends to support developing countries with capacity building and technical assistance, but as yet few concrete actions have been taken. 

And yet an automatic exchange of information isn’t sufficient, in itself, to curb global tax dodging. In order to ensure tax is paid in the country where the economic activity takes place, G20 leaders will need to ensure much greater levels of transparency on the tax activities of multinational corporations. Currently required only to report on a globally or regionally aggregated basis, there has been welcome progress towards country-by-country reporting, which would require multinational corporations to publicly report their operations and activities for every country in which they operate. 

By making this information publicly available, multinational companies will find it harder to evade their fair share of tax, and citizens of all countries will be able to hold governments to account for how they raise and spend corporate tax revenue.

In Brisbane next week, our leaders will have the opportunity to choose whether or not they take concrete steps towards a fairer and more sustainable world by tackling tax dodging and improving transparency. The many people in rich and poor communities all over the world who have been calling for justice in the global financial system will be watching with interest. 


Angela Owen

Angela Owen is the Media and Communications Coordinator for the global Christian campaign Micah Challenge, which is coordinating awareness and advocacy on tax dodging in Brisbane this weekend as part of its Shine the Light initiative.

 



Topic tags: Angela Owen, Micah Challenge, tax, taxdodging, poverty, developing world, G20

 

 

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Existing comments

Excellent article Angela. It is amazing that a not for profit aid organisation can get to the nub of the matter where the worlds finance leaders only flounder. As a pastor once reflected on surveying the no. of expensive cars in the church carpark - we do not have a problem with having enough money, it is simply what we choose to spend it on. Thank God for Micah challenge shining the Light on a very sick and sickening world.
Martia Wilkinson | 06 November 2014


Thank you Angela and Micah Challenge for the important work you do on behalf of a fairer world.
Laura Murray Cree | 07 November 2014


Great piece. Is it silly to suggest that Australians boycotting Ikea and their ilk for one day a year might help them to get the message?
Michael D. Breen | 08 November 2014


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