While disagreements over Syria are likely to dominate the annual G20 Summit in St Petersburg this week, leaders are at least in agreement about one key issue on the table: the need to rewrite global corporate tax rules.
As the OECD acknowledged this year, current laws – some dating back to the 1920s – are simply no longer fit for purpose in a modern globalised world. Created to avoid the “double taxation” of companies working in more than one country, they are now being abused by companies using transfer pricing to avoid paying tax where they do business – sometimes avoiding paying tax in any country.
The scandalous result is that the world’s poorest countries are losing $160 billion a year – resources that could be spent on tackling poverty and boosting their economies. In the two days of the G20 summit alone, the money being siphoned out of developing countries by companies would be enough to pay for the entire annual education budgets of Kenya and Tanzania.
As the economic crisis continues to bite, forcing governments and people around the globe to tighten their belts, it’s easy to see why tax dodging by multinational corporations has caused a tidal wave of public outcry. To its credit, the UK government took leadership on the issue at the G8 summit back in June and waved a red flag at tax dodgers, warning them that their days of ripping off rich and poor countries alike were numbered.
But while the G8 saw some movement towards improving tax haven transparency and an acknowledgement of the need to ensure poor countries are included, it is the G20 which has all the big players at the table. This is where the main action needs to takes place.
In April, G20 finance ministers backed the multilateral Convention on Mutual Administrative Assistance in Tax Matters and China became the final G20 member to sign up to it last week.
But for all the goodwill, pledges and agreements, people in the poorest countries will be left behind in the race for tax reform unless world leaders seriously up their game. We need much more than the warm words in the G8 communiqué to ensure that tax dodging no longer undermines the fight against global poverty.
The stakes are high. Global aid is falling for the first time in 15 years yet, despite recent progress, one in eight of the world’s population goes to bed hungry and many more live in poverty. Leaders in St Petersburg have the chance to send a clear signal that they are no longer willing to tolerate some of the world’s most profitable firms dodging their responsibilities to global society. They must grasp it.
This is an abridged version. Read the full version published by Financial Times/Beyond BRICS (3 September 2013).