Developing Nations Push Corporations to Pay Their Fair Share
by Jessica Schieder, 7/23/2015
Developing nations gathered at the Third UN Conference on Financing for Development in Ethiopia earlier this month and pushed for a more equitable approach to taxes—they want corporations to pay their fair share and contribute to the well-being of the nations that benefit their bottom lines.
International rules that have long benefitted wealthy nations and corporations are draining the developing world of financial resources. This sets up a system that is fundamentally unfair and encourages money laundering and other illegal activities. Unfortunately, as the UN conference drew to a close, developing countries were no more empowered to fight tax avoidance and evasion, as well as illicit flows of money in and out of their borders. Illicit flows involve money that is moved across international borders illegally to evade taxes, engage in criminal activity, and more.
Illicit money flows and lost tax revenue are robbing developing nations of needed financial resources.
“Illicit money flows and tax evasion are costing Africa between $30 and $60 billion a year. This is more than the total development aid,” said Senegalese President Macky Sall. Providing development aid without simultaneously establishing rules that would allow developing countries to effectively collect taxes is like water pouring into a bucket with holes. Developing countries are denied the self-sufficiency for internal development that fair taxes would allow and instead remain dependent on shrinking foreign aid budgets.
Helping developing countries enforce their own tax laws would empower them to generate their own financial resources. “I think there’s now a very widespread understanding that a lot of low income countries could probably raise more of their own money themselves,” says Professor Mick Moore, CEO of the International Center for Tax and Development. Developing countries may lose as much as $200 billion in public revenues each year to tax avoidance.
These lost tax dollars go to corporate bottom lines instead of public investments in education and infrastructure in the developing world. Developing nations and civil society organizations argue that the Organization for Economic Cooperation and Development (OECD) has been unwilling to tackle tax avoidance because the multinational corporations avoiding the taxes are headquartered in the rich countries that comprise the members of the OECD.
“The United States, United Kingdom and others are unwilling to challenge the reality of multinational companies dodging their tax obligations everywhere around the world. They have chosen to defend the interests of the rich and powerful over the needs of people around the world, including their own citizens,” said Rebecca Wilkins, executive of the Financial Accountability and Corporate Transparency (FACT) Coalition, of which the Center for Effective Government is a member.
By increasing corporate transparency and closing tax loopholes exploited by multinational corporations (like Wal-Mart, Apple, GE, and ExxonMobil) to avoid billions in taxes, the United States would have more funds to pay for repairs to our nation's roads and bridges, to invest in our children’s education, and ensure all Americans have a chance to get ahead.
In turn, developing countries would be better able to leverage the financial resources that exist within their own borders to improve their infrastructure and meet their citizens’ needs. Across the board, corporations would be asked to pay their fair share toward shared prosperity in all of the communities where they operate.
Giving the UN the power to fight corporate tax avoidance would change the game.
Advocates insist that the only way to stop multinationals from cheating the developing world is to create a new global entity to tackle corporate tax avoidance under the umbrella of the United Nations, where developing nations are more influential and better represented. The proposal was included in a position paper released ahead of the Ethiopia conference, outlining a wish list of policy changes, which was endorsed by 142 civil society organizations. The recommendations included:
- Coordinate on tax policy: Establish a new intergovernmental body to help countries cooperate on tax policy, including things like tax treaties, country-by-country reporting requirements, and the automatic exchange of tax information between countries to increase transparency, and to explore shared challenges such as corporations shifting profits to other nations.
- Manage and regulate foreign direct investment for developing countries: Protect developing countries from the often fickle flows of private investment capital, which can be beneficial in the short-term but devastate a developing economy when investment opportunities shift.
- Review all current trade agreements and investment treaties: Ensure developing countries are empowered to prevent and manage crises, protect their citizens’ access to decent jobs, effectively enforce tax laws, deliver public services, and protect their environment.
- Strengthen commitments to provide assistance to developing countries: Increase rich countries’ assistance to developing countries until their commitments meet the amounts recommended by the United Nations (0.7 percent of gross national income annually) and set timetables for countries to reach those goals.
- Reaffirm commitments to debt restructuring: Allow countries heading toward debt crises to restructure their debt in a way that is comprehensive, timely, sensitive to all stakeholders, and holds irresponsible creditors and debtors accountable.
“Without the commitment to create a truly global tax body, any outcome from these negotiations will continue to place all the burden of financing for development on developing countries’ own doorsteps,” said Alison Holder, policy advisor on tax reform for Oxfam.
The push to reduce tax avoidance by multinationals is just one of a number of issues that was discussed at last week’s conference, which also covered debt, development assistance, and trade.
Last week’s debates in Ethiopia are a reminder that tax avoidance and corporate secrecy are not only reducing the funds Americans have to invest at home, but they are also an obstacle to progress in the developing world. In those countries – as in the United States – corporations must be asked to contribute to shared prosperity and people's quality of life.
For Future Reading:
Offshore Tax Dodgers Jeopardize Long-Term Financial Health of American Small Businesses, The Fine Print, 4/16/2015
Lawmakers Push to Stop Tax Haven Abuse, The Fine Print, 1/15/2015
Flow of Illicit Money Undermines Governments and Impedes Development, The Fine Print, 12/16/2014