The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

You vs. big business

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Who will level the global playing field? An image from Oxfam's "Even It Up" video. Watch it here: oxfamamerica.org/evenitup Who will level the global playing field? An image from Oxfam's "Even It Up" video. Watch it here: oxfamamerica.org/evenitup

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Will G20 world leaders take your side on global tax policy?

Didier Jacobs is special advisor to the President at Oxfam America.

What if the money that poor countries lose to multinational corporations’ unpaid taxes each year was enough to get every child into school?

Oxfam estimates that poor countries lose at least $100 billion a year to corporate tax dodging and generous tax breaks for corporations.

That’s not just enough to get every child into school once, but four times over!

High on the agenda of the G20 summit, where leaders of the world’s 20 largest economies will meet this weekend in Brisbane, Australia, is a review of global rules to coordinate taxation of multinational corporations. Last week’s leak of hundreds of secret tax agreements between Luxembourg and blue chip companies confirms that they have got plenty of wood to chop.

Three quarters of the world’s poor now live in countries that are no longer so poor. Countries like Nigeria or Indonesia receive little foreign aid, but have growing domestic resources and extreme wealth co-existing side by side with extreme poverty. Fighting inequality and fighting poverty are two sides of the same coin. That is why Oxfam launched the Even It Up campaign to end extreme inequality.

Developing countries must tap their own resources and raise taxes to fund their education, health care or rural development programs. Crisis-stricken rich countries also have a stake in ensuring that multinational corporations pay their fair share of taxes to reduce budget deficits without hacking public services.

The G20 is expected to mandate automatic exchange of bank accounts information between tax authorities, which will help them fight tax evasion. The billion-dollar fines that the United States imposed on Swiss banks for facilitating tax evasion by US citizens gives confidence that governments are getting serious when it comes to outright fraud. “No bank is too big to jail,” said former US Attorney General Holder.

But that is not the end of the road for tax evasion. Many developing countries need assistance to take advantage of the information exchange agreement. Registries of the owners of corporations should be published. Tax havens that refuse to be part of the agreement should be sanctioned.

Multinational companies also resort to accounting trickery to shift their profits to tax havens and legally avoid paying taxes. The G20 will review progress on a series of rules developed by the OECD to address tax avoidance. The goal is to make multinational companies pay taxes in the countries where they have real business activities. Multinational companies will have to report to tax authorities a breakdown of their sales, profits, assets and taxes country by country.

This information will expose where corporations stash their profits out of reach of tax authorities, demonstrating the inadequacy of the band aids under consideration. Precisely for that reason, however, world leaders refuse to make that information public. Their effort is ultimately half-hearted and does not inspire confidence that they truly do all they can against tax avoidance. Developing countries with less institutional capacity to process the information will again be the biggest losers.

For the United States alone, the practice of shifting profits overseas cost the federal government an estimated $90 billion in 2008, which was about 30% of corporate income tax revenues or three times the federal budget for foreign aid.

“The way to make American businesses competitive is not to let some individuals and businesses dodge their responsibilities and let ordinary Americans pick up the slack.” ~President Obama

Politicians like to pander about fairness. But when it comes to policy details, they bulk to pressure from big business and perpetuate loopholes. Politicians also like to engage in tax competition to lure foreign investment through tax breaks for certain industries, activities or even individual companies. In 2012, Sierra Leone’s tax breaks for just six firms were equivalent to 59 percent of the country’s entire budget, and more than eight times its spending on health and seven times its spending on education. The Ebola epidemic took hold in this country owing to a very weak health care system.

If every country becomes a tax haven for foreign multinational companies, we all lose. Taxes are not a major factor in determining the geographic deployment of multinational companies’ real business activities anyway, but they do drive unproductive profit shifting. Addressing this race to the bottom is missing from the G20’s agenda.

In the end, what is asked of G20 world leaders is less to arbitrate competing national interests than to arbitrate the interests of big business and the rest of us. Corporate tax dodging is much too far from the interests of most of the world’s citizens.

Join the conversation

  1. totinofrancesco@tiscali.it'Francesco Totino

    it’s amazing that after almost ten years we are going worse then before from a finance regulation point of view … if we are still at this point means that top management of international finance Institutions has been inefficient. All the heads of state and Top mngt of international institutions will have to answer.
    I thought that everybody knews that each country is no longer able to act alone in the world economy transactions and to survive need a close cooperation with others … but now again after 2008 crisis the message is clear and worse .. If we don’t rule the finance , the West countries will all go into default soon , even the richest ones … the old developing countries becouse their fast growing economiy will grow for another while … and then will go down too… in the meantime the disequalities will abnormally grow among populations and will cause some exepcted revolutions .
    http://economicsandpolicy.blogspot.it/2013/03/what-europe-should-do.html

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