Lack of transparency stands in the way of a fair global tax system, according to a new report by the UK All Party Parliamentary Group (APPG) on Responsible Tax.
Unless tax secrecy is eliminated, any newly introduced rules to tackle global tax avoidance will fail, stated the APPG report.
The report, titled A more responsible global tax system?, responds to a recently introduced action plan by the Organisation for Economic Co-operation and Development (OECD) for tackling profit shifting [known as BEPS or Base Erosion Profit Shifting].
Commenting on the issue Dame Margaret Hodge MP, chair of the APPG said: “Only when we know who owns what, where the assets are owned, where the money is earned and what tax has been paid, can we have confidence in the fairness and integrity of the tax system.”
She added: “We need to open up the affairs of global companies to public account if we are to clean up the widespread abuse that pervades so many international businesses.”
According to the APPG report OECD’s recommendations simply “patch up existing rules” and could bring further loopholes and greater complexities to the international tax system.
In addition to adding complexities, the new rules also pave the way for misuse, according to Hodge: “Corporations, aided by an army of advisors, banks and lawyers, can exploit these rules to avoid paying tax where value is genuinely created,” adding that this could further undermine public trust in the tax system.
When it comes to the impact of corporate tax avoidance on developing countries, it is estimated that they lose $200 billion a year, with schools and hospitals being starved of the funding they need, according to ActionAid director of policy Barry Johnston.
Johnston said: “The UK and poor countries alike are paying the price as companies exploit this failed system to engineer the lowest possible tax bill.”
Johnston urged the Theresa May, UK Prime Minister, to tackle British overseas tax havens, end the race to the bottom on corporate tax rates and stop companies artificially shifting profits around the world.
“This September’s G20 meeting in China – May’s first major summit as PM – provides the perfect opportunity for her to show she means business,” he added.
The APPG report suggested that a review of the way in which global companies are taxed should be introduced. Hodge proposed a number of steps to tackle tax avoidance, such as:
- Force tax havens (overseas territories and crown dependencies) to introduce public registers of beneficial ownership.
- The introduction of country-by-country reporting.
- End secrecy that encompasses tax havens.
- Work internationally to create sustainable rules.
- Ensure tax is properly paid where value is actually added.
She noted that the OECD has done well to build consensus around tackling tax avoidance, however the proposals of the rich countries’ club are likely to fail to meet such a global challenge.