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The UK supports Country by Country reporting standards and publishes study minimising transfer mispricing impacts on development
26 June 2009
Finance ministers meet in Berlin on Tuesday 23rd June to review the international crackdown on tax havens. The meeting was organised by the French and German finance ministries and was also attended by Hans-Rudolf Merz, Swiss finance minister. Interestingly, this meeting has been the occasion for the UK to announce its support for Country by Country reporting in order to fight aggressive tax avoidance, informs recent article in the Financial Times. The article explains: “The British Treasury, which is keen to expand the campaign against tax havens to embrace aggressive avoidance, as well as evasion, plans to voice support for a new move towards “country-by-country” reporting. It believes this additional reporting requirement for multinationals would bring more transparency into their negotiations with developing countries on transfer pricing, which determines the allocation of taxable profits between parts of a multinational.”
Not surprisingly, “this idea is largely opposed by business”, explains the article. This strong opposition might have somehow influenced the conclusions of the recent study commissioned by UK’s Department for International Development and conducted by the Oxford University Centre for Business Taxation. The study says: “tax losses due to profit-shifting by multinationals have been “overestimated drastically””. According to the same article, “it also questions the view that tax evasion is the prime motivation for money being shifted out of developing countries, saying political instability and concerns about property rights may be more important”.
Richard Murphy, from tax Research, responds to the study’s critique of CSO estimates on illicit flows. “To criticise us for using the only available data and the only available methods does seem extraordinary. What would the Oxford team have us do? Deny there is a problem, when it is very obviously true that there is one, or just have us ignore it because we cannot fit our data into their preferred models?”. Murphy goes on: “the Oxford approach is to estimate the tax that the existing systems with the existing data might collect. But that’s not what people like the Tax Justice Network, Christian Aid, Oxfam and Global Financial Integrity have sought to collect. We want to show the capacity for collection if only data were available and systems improved in consequence”.
The DFID seems to see in the Oxford study a useful first step but has pointed to the need for more research. Indeed, more research including inputs from CSO already working on this area is badly needed.