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'Sticking-plaster approach' will not end multinational tax dodging crisis

05 October 2015 - New proposals on how to make multinationals pay their taxes amount to a ‘sticking-plaster approach’ which will leave global companies in a position to continue to cheat poor countries out of billions every year, Christian Aid warns today.

The proposals the OECD, are the result of two years’ work on tackling systematic tax avoidance by multinationals – a problem described by the OECD itself as ‘a serious risk to tax revenues, tax sovereignty and the trust in the integrity of tax systems of all countries’.

Christian Aid’s Head of Advocacy and Policy Sorley McCaughey, said: “It is frustrating to see that the OECD correctly diagnosed the tax dodging crisis but has not been allowed to prescribe the right cures. Instead we have a sticking-plaster approach, which may provide limited improvement in some areas but is a long way from the comprehensive, effective solution that is required.”

He added: “Despite being clear what the problem was, any potential the OECD experts had to recommend effective solutions has been thwarted governments’ unwillingness to stand up to multinationals and the tax avoidance industry.

'The result of their moral and political failure is that poor and rich countries alike may continue losing billions every year to multinationals.

“The result of their moral and political failure is that poor and rich countries alike may continue losing billions every year to multinationals. The price will be paid by ordinary people across the world, along with companies too small or too honest to avoid tax. They get worse public services and higher tax bills because many multinationals don’t pay their fair share.

“Lack of tax revenue also damages countries’ ability to protect people’s human rights, fight inequality and achieve the new Sustainable Development Goals.

“Developing countries, which are particularly ill-equipped to compete with the expensive lobbying, tax lawyers and accountants used by multinationals, are hardest hit.”

Mr McCaughey said the OECD’s failure to identify reforms that will bite on corporate tax dodging made further change inevitable. “Because of the inadequacy of the OECD proposals, further more substantial changes to the global tax system in the coming years seem inevitable,” he said. “They will represent a triumph of public opinion over political will. Ireland along with the UK and US, fought hard at recent international talks UN talks on Financing for Development to ensure that the power to set international tax rules stayed with rich countries.”

The OECD's proposals today flow its work on "Base Erosion and Profit Shifting" (BEPS) which it was tasked with tackling by the G20 two years ago. This is the way in which subsidiaries of the same multinational will sell goods and services between themselves to ensure that the main profits made are in tax havens. Christian Aid has estimated that this practice costs developing countries some US$160bn a year in lost taxes.

Mr McCaughey said one the most disappointing aspect of the OECD proposals was their failure to challenge the fiction that multinationals’ subsidiaries are independent of each other. “It is this fiction above all which allows multinationals to get away without paying their fair share of tax,” said Mr McCaughey “For decades, they have pretended their profits just happen to arise in tax havens where tax rates are low and secrecy high but everyone knows this is a profitable lie.”

Also deeply disappointing to Christian Aid is the OECD’s failure to include many developing countries in the discussions which led to today’s conclusions. “As a result of being managed by the OECD, the process never included the poorest countries on an equal footing,” said Mr McCaughey. “Yet these countries will be asked to implement rules that they had no real part in developing and which will not solve their problems.”

One potential point of light in the OECD proposals is their recognition of the value of country-by-country reporting, which can help tax authorities to identify suspicious practices that warrant further investigation. However even here, the detailed proposals are fatally flawed. The information will not be made public, meaning it cannot be called transparent, and many of the poorest countries may never see the information they need. The European Union is considering a genuinely transparent system of country-by-country reporting and it is imperative that this is not held back by the OECD failure to promote true transparency.

For further information contact Barry Turley on 0044 7734 256318, or Florence Mutesasira at 086 160 9405, email fmutesasira@christian-aid.org.


Notes to editors:

1. Christian Aid works in some of the world's poorest communities in around 50 countries at any one time. We act where there is great need, regardless of religion, helping people to live a full life, free from poverty. We provide urgent, practical and effective assistance in tackling the root causes of poverty as well as its effects.

2. Christian Aid’s core belief is that the world can and must be changed so that poverty is ended: this is what we stand for. Everything we do is about ending poverty and injustice: swiftly, effectively, sustainably. Our strategy document ‘From Inspiration to Impact’ outlines how we set about this task.

3. Christian Aid is a member of the ACT Alliance, a global coalition of more than 130 churches and church-related organisations that work together in humanitarian assistance, advocacy and development. Further details at http://actalliance.org

4. For more information about the work of Christian Aid visit www.christianaid.ie

 

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