G20 leaders send mixed signals on tax, fail to mention other pressing economic issues

The G20 leaders' summit, concluded on 6 September, saw economic policy pushed to the sidelines by division over Syria, concealing the fact that many pressing issues, including dealing with sovereign debt crises and reforming the IMF, are defined by inaction, while the big ticket measures to tackle tax evasion have made mixed progress since finance ministers met in July.


Tax – the main game in town

As expected, the G20 leaders formally endorsed the “…OECD work with G20 countries aimed at presenting ... a new single global standard for automatic exchange of information” between tax authorities – a critical component of any plan to crack down on tax dodging. However, the rapid pace of delivery – a model standard by February 2014, technical modalities completed a few months later, ahead of full implementation by the end of 2015 – confirms worries that non-G20 developing countries will effectively be excluded from the design. This could also imply that they are unlikely to be among the fortunate countries that will receive this vital information and therefore be unable to get a picture of what the global tax situation actually looks like. 


Despite press coverage suggesting the G20 would make moves to include developing countries in the formulation of global tax rules, the communiqué specifically rules this out. Despite the tax annex saying that “Developing countries must reap the benefits of the G20 tax agenda”, the communiqué is peppered with references to supporting non-G20 developing countries to implement G20 or OECD agreements, without ever mentioning their involvement in the design of such agreements. For example, it calls for international organisations – led by the OECD and the G20 – to develop a “roadmap showing how developing countries can overcome obstacles to participation in the emerging new standard in automatic exchange of information.” Rather than postpone the involvement of developing countries to an unspecified time in the future when they have overcome the “obstacles to participation”, the G20 should include these countries in the design and building of a regime that provides access for developing countries from the very beginning.


The G20 leaders also rubber-stamped the backing given by G20 Ministers in July to the OECD’s plan to tackle ‘base erosion and profit shifting’ - the methods used by multinationals to shift profits to low tax jurisdictions. Although the action plan signals an important recognition by governments of the seriousness of the issue of tax dodging by multinationals, it also shows their hesitation over taking action to solve this problem.  Despite the clear failure of the OECD’s current approach, based on the “arm’s length principle”, there was only one small recognition in the  tax annex to the G20 communiqué that this model may not be the right one: “...although the existing transfer pricing rules appropriately allocate income in many instances, special measures, either within or beyond the arm’s length principle, may be required to address certain specific difficulties arising in the current system.”


Finally, though the leaders address the issue of exposing the real or ‘beneficial’ owners of companies, the wording is disappointing. Eurodad is part of a coalition calling for public registries of beneficial owners but the communiqué seems intent on denying access to this vital information to the public, saying it should only be available to “…law enforcement, tax collection agencies and other relevant authorities in accordance with the confidentiality legal requirements, for example through central registries or other appropriate mechanisms.”  


Investment – not such a high priority after all

Despite the Russian presidency highlighting the issue during the July finance ministers meeting, further progress on the controversial agenda to promote long-term investment is kicked forward to the Australian presidency, with a commitment to “to identify and start to implement by the Brisbane Summit a set of collective and country-specific actions that tangibly improve our domestic investment environments such that they are more favorable to long-term investment financing”.


The July work plan of G20’s ‘study group’ on financing investment is approved, but it contains very little detail on what is work is actually planned, except further study. As Eurodad has previously noted, with the IFIs and the OECD at the helm, it is uncertain whether any new thinking will emerge.


Debt inaction

The G20 leaders continued their finance ministers’ striking inaction on introducing sensible solutions for debt crises. Though the G20 acknowledged that "high public debt and its sustainability" is a problem, again no mention was made of proposals promoted by Eurodad and others for an effective, fair and transparent sovereign debt workout mechanism, or for the introduction of responsible lending and borrowing practices to prevent future crises, nor of the UN processes ongoing in these critical areas.


As noted in our analysis of the July finance ministers’ meeting, more substantive reforms to the global monetary system were also left off the table. Previous meetings had seen talk of ending the dollar’s dominance through its use as the de facto global reserve currency, and expanding the role of the special drawing right (SDR) – an international reserve asset all IMF members hold - as an alternative.  Eurodad member ActionAid called for serious consideration of such proposals, including, “…a new, neutral, and global reserve and trading currency”.  They concluded that “Stumbling from crisis to crisis is no way to run the global economy”.


Governance reform – now we are really serious

As noted previously by Eurodad, G20 pronouncements on IMF governance reform should be taken with a pinch of salt, given that the 2010 IMF governance reforms have long since passed their 2012 deadline for completion.We will have wait to see what may be agreed at the upcoming October IMF annual meetings, to judge whether the fact that the G20 leaders “attach high importance to securing continued progress” on IMF quota reform is meaningful.


The G20 also released a Development Outlook summarizing the work done by the G20’s development working group, and outlining new ‘actions’ to be taken, which actually consist of further ‘examination’ or ‘reviews’ and contain no specific new commitments from G20 countries to change any of their own policies. This approach – focusing on ‘helping’ other developing countries rather than committing the G20 countries to any changes they can actually implement – is the hallmark of the G20’s approach on development, as the new Accountability Report on G20 Development Commitments reveals.