ActionAid calls for ‘fresh thinking’ from the tax profession, and Christian Aid says there is an opportunity for ‘everyone to work together to create a solution’
Two leading charities have defended their campaigning on international tax issues after Bill Dodwell, head of tax policy at Deloitte, suggested that ‘at a time where there is focus on professional ethics, one has to wonder whether there is now a need for an ethical code for campaigning charities’.
ActionAid said its campaigning for tax justice focused on the importance of transparency, morality and a set of rules that are fit for purpose. Suggesting that campaigning charities lack ethics did not help, it said.
Christian Aid’s senior economic justice adviser, Joseph Stead, told Tax Journal that it was disappointing that while Dodwell claimed that the charity’s estimate in 2008 of the cost of ‘tax dodging’ to developing countries was a ‘massive exaggeration’, he did not acknowledge the issue that Christian Aid was seeking to address.
‘That issue is the manner in which developing countries lose vast amounts of tax revenue that should be theirs, leaving public services underfunded, the value of overseas aid undermined, and the prospect of countries ending aid dependency receding further and further into the distance,’ Stead added.
Dodwell is a member of Tax Journal's editorial board. He wrote in today's issue: ‘Businesses and tax advisers will need to invest more time in helping improve public understanding of our tax system and the major contribution made by business to the UK economy.’
His concerns over the direction of public debate are shared by many tax professionals, who believe that some multinationals using low tax jurisdictions to reduce their effective tax rate have been wrongly accused of engaging in aggressive tax avoidance. Some tax practitioners have accused politicians of undermining the rule of law.
Tax base erosion
However, earlier this week the OECD declared that gaps in the international tax system give multinationals an unfair competitive advantage over smaller businesses and ‘hurt investment, growth and employment’. The OECD’s study, presented to G20 finance ministers meeting in Moscow today, found that some multinationals use strategies that allow them to pay ‘as little as 5% in corporate taxes when smaller businesses are paying up to 30%’.
OECD secretary-general Angel Gurría said: ‘These strategies, though technically legal, erode the tax base of many countries and threaten the stability of the international tax system.’
Responding to the OECD report, Dodwell said there was ‘widespread agreement that some form of international consensus is needed to update the international corporate tax framework’.
However, in an opinion piece written before the OECD published, Dodwell complained of a number of ‘myths’ about tax, including the belief that ‘charities and tax campaigners present taxation issues fairly’.
ActionAid
Dodwell challenged the findings of an ActionAid report, published in October 2011, which formed the basis of a Liberal Democrat MP’s claim that 98 FTSE 100 companies had a subsidiary in a tax haven. ‘There’s an obvious problem in merging a list of low tax countries with a list of countries which don’t publish company accounts or details of shareholders – and then calling them all tax havens,’ Dodwell said. It was ‘absurd’ for ActionAid to count the Netherlands and Delaware as tax havens.
Chris Jordan, tax justice campaign manager at ActionAid, told Tax Journal: ‘We are disappointed to see Bill Dodwell’s criticism of ActionAid’s work on tax issues, which is designed to help some of the world’s poorest countries fund vital investments in public services and infrastructure. At a time when 50% of FTSE 100 chief executives agree that public anger on tax avoidance is justified, fresh thinking and real leadership from the tax profession is imperative.’
Dodwell’s criticism of ActionAid’s research on tax havens was misplaced, Jordan said. ‘As we acknowledge in the report, there is no universal agreed definition of tax havens, so basing our research on a list compiled by the US congress was the most rigorous option available to us. Most parties accept that tax havens are not only characterised by their headline tax rates, but also levels of secrecy and the presence of particularly abusive loopholes in tax codes. This is certainly the case with the Netherlands, which ActionAid research has shown plays an important role in facilitating tax avoidance by multinational companies, depriving African governments of vital revenues.’
Jordan added: ‘ActionAid’s campaigning for tax justice focuses on the importance of transparency, morality and a set of international tax rules that are fit for purpose. We recognise this is a complex debate, but suggesting that campaigning charities lack ethics doesn’t help to resolve the situation for businesses, accountants or policy makers. Most importantly for ActionAid, it doesn’t help developing countries begin to claim the vital tax revenues they need to become independent of development aid.’
As Tax Journal reported last month, half of the FTSE 100 chairmen who responded to a survey conducted by Korn/Ferry Whitehead Mann agreed that public anger over multinationals using low-tax jurisdictions to minimise their tax bills was justified.
Christian Aid
Dodwell claimed that Christian Aid ‘saw fit to indulge in massive exaggeration in its 2008 report Death and Taxes’. There was ‘no support’ for the charity’s estimate of the loss of corporate taxes to the developing world through ‘tax dodging’, he said.
As Tax Journal reported in September 2010, Christian Aid estimated that ‘tax-dodging firms rob poor countries of more than $160bn a year’. That figure included the estimated impact of alleged ‘mispricing’, or false invoicing, and ‘abusive transfer pricing’. Dodwell had criticised the charity’s campaign in an article in Tax Adviser, in November 2009.
However, that $160bn estimate has been revisited in recent weeks. Christian Aid and ActionAid are among more than 100 organisations that signed up to the IF campaign last month. Campaigners said: ‘Dealing with developing countries’ corporation tax gap alone could raise enough public revenues to save the lives of 230 children under the age of five every day.’
Responding to Dodwell’s article today, Joseph Stead said ‘all the evidence’ indicated that developing countries ‘face significant problems in effectively taxing multinationals’. Stead’s detailed response is reproduced below.
Richard Murphy
Dodwell’s article also criticised tax campaigner Richard Murphy’s estimate of the UK’s tax gap. ‘[Murphy] devises his own estimates, without access to the data held by HMRC. He then chooses to add in tax paid late – which clearly isn’t part of the gap. This figure is then used by the TUC and other unions as if it was in any sense comparable to HMRC’s calculations,’ Dodwell said.
Murphy, director of Tax Research UK, told Tax Journal he was ‘bemused’ by Dodwell’s comments. ‘They are a sign of desperation: to accuse NGOs of unethical conduct on tax reveals a man struggling against the obvious tide of morally driven change,’ he said.
Christian Aid’s response
Joseph Stead, Christian Aid’s senior economic adviser, said: ‘[The fact that] developing countries lose vast amounts of tax revenue that should be theirs, leaving public services underfunded, the value of overseas aid undermined, and the prospect of countries ending aid dependency receding further and further into the distance, is acknowledged by more than just Christian Aid; the OECD Taskforce on Tax and Development seeks to address the issue, while the African Union and Economic Commission for Africa currently have a high level panel looking at illicit financial flows from Africa.
‘In the G20, as part of the Development Working Group, there is a team looking at tax issues. It was the G20 which also commissioned a report from IMF, World Bank, OECD and UN for the Cannes summit in 2011, the recommendations of which are mostly, sadly, being ignored. In the UK the International Development Committee of Parliament undertook an enquiry into Tax and Development, recognising that tax is a key issue for development.
‘Whilst these initiatives, and others, may not have identified specific figures on the scale of the impact of revenue losses to developing countries, as Christian Aid sought to do, it is worth noting that there is a range of support both for Christian Aid’s figure, and crucially, the point we are trying to make.
‘The World Bank’s published book Draining Development included a peer-reviewed paper that supported the $160bn figure as plausible.
‘The OECD accepts that the estimates of the totals lost from tax dodging exceed by some distance the levels of aid. Indeed the head of the OECD [said in 2008] that developing countries may be losing up to three times the volume of global aid.
‘Even the accountants accept that transfer pricing is a significant problem for developing countries. PwC [Belgium] did a report for the European Commission looking at the scope for developing countries to increase tax revenues by improving their transfer pricing capabilities. What is noticeable here is that in their upper estimates for all four countries they looked at, they see the potential for increasing corporate tax from multi-national companies to be an extra 50% in five years solely through cracking down on transfer pricing abuse.
‘That developing countries face significant problems in effectively taxing multinationals is the salient point here, with all the evidence indicating that this is the case. Indeed this week the head of the OECD said corporate tax dodging globally, not just in developing countries, is “a threat to democracy” and in the BEPS report he was launching, the OECD acknowledge that what is currently at stake is “the integrity of corporate income tax”.
‘This shows that Bill Dodwell is right when he says that this debate isn’t about to go away, and that business and tax advisers will need to invest more time in helping improve public understanding. We are open and transparent about how we arrive at the figures that we have used (it’s why they are able to be critiqued so much).
‘Companies have been much less open and transparent about their tax policies. There is an opportunity for everyone to work together to create a solution that addresses the issues and myths that Mr Dodwell raises, and come to common understandings as societies in both developed and developing countries on how our tax systems should work.’
ActionAid calls for ‘fresh thinking’ from the tax profession, and Christian Aid says there is an opportunity for ‘everyone to work together to create a solution’
Two leading charities have defended their campaigning on international tax issues after Bill Dodwell, head of tax policy at Deloitte, suggested that ‘at a time where there is focus on professional ethics, one has to wonder whether there is now a need for an ethical code for campaigning charities’.
ActionAid said its campaigning for tax justice focused on the importance of transparency, morality and a set of rules that are fit for purpose. Suggesting that campaigning charities lack ethics did not help, it said.
Christian Aid’s senior economic justice adviser, Joseph Stead, told Tax Journal that it was disappointing that while Dodwell claimed that the charity’s estimate in 2008 of the cost of ‘tax dodging’ to developing countries was a ‘massive exaggeration’, he did not acknowledge the issue that Christian Aid was seeking to address.
‘That issue is the manner in which developing countries lose vast amounts of tax revenue that should be theirs, leaving public services underfunded, the value of overseas aid undermined, and the prospect of countries ending aid dependency receding further and further into the distance,’ Stead added.
Dodwell is a member of Tax Journal's editorial board. He wrote in today's issue: ‘Businesses and tax advisers will need to invest more time in helping improve public understanding of our tax system and the major contribution made by business to the UK economy.’
His concerns over the direction of public debate are shared by many tax professionals, who believe that some multinationals using low tax jurisdictions to reduce their effective tax rate have been wrongly accused of engaging in aggressive tax avoidance. Some tax practitioners have accused politicians of undermining the rule of law.
Tax base erosion
However, earlier this week the OECD declared that gaps in the international tax system give multinationals an unfair competitive advantage over smaller businesses and ‘hurt investment, growth and employment’. The OECD’s study, presented to G20 finance ministers meeting in Moscow today, found that some multinationals use strategies that allow them to pay ‘as little as 5% in corporate taxes when smaller businesses are paying up to 30%’.
OECD secretary-general Angel Gurría said: ‘These strategies, though technically legal, erode the tax base of many countries and threaten the stability of the international tax system.’
Responding to the OECD report, Dodwell said there was ‘widespread agreement that some form of international consensus is needed to update the international corporate tax framework’.
However, in an opinion piece written before the OECD published, Dodwell complained of a number of ‘myths’ about tax, including the belief that ‘charities and tax campaigners present taxation issues fairly’.
ActionAid
Dodwell challenged the findings of an ActionAid report, published in October 2011, which formed the basis of a Liberal Democrat MP’s claim that 98 FTSE 100 companies had a subsidiary in a tax haven. ‘There’s an obvious problem in merging a list of low tax countries with a list of countries which don’t publish company accounts or details of shareholders – and then calling them all tax havens,’ Dodwell said. It was ‘absurd’ for ActionAid to count the Netherlands and Delaware as tax havens.
Chris Jordan, tax justice campaign manager at ActionAid, told Tax Journal: ‘We are disappointed to see Bill Dodwell’s criticism of ActionAid’s work on tax issues, which is designed to help some of the world’s poorest countries fund vital investments in public services and infrastructure. At a time when 50% of FTSE 100 chief executives agree that public anger on tax avoidance is justified, fresh thinking and real leadership from the tax profession is imperative.’
Dodwell’s criticism of ActionAid’s research on tax havens was misplaced, Jordan said. ‘As we acknowledge in the report, there is no universal agreed definition of tax havens, so basing our research on a list compiled by the US congress was the most rigorous option available to us. Most parties accept that tax havens are not only characterised by their headline tax rates, but also levels of secrecy and the presence of particularly abusive loopholes in tax codes. This is certainly the case with the Netherlands, which ActionAid research has shown plays an important role in facilitating tax avoidance by multinational companies, depriving African governments of vital revenues.’
Jordan added: ‘ActionAid’s campaigning for tax justice focuses on the importance of transparency, morality and a set of international tax rules that are fit for purpose. We recognise this is a complex debate, but suggesting that campaigning charities lack ethics doesn’t help to resolve the situation for businesses, accountants or policy makers. Most importantly for ActionAid, it doesn’t help developing countries begin to claim the vital tax revenues they need to become independent of development aid.’
As Tax Journal reported last month, half of the FTSE 100 chairmen who responded to a survey conducted by Korn/Ferry Whitehead Mann agreed that public anger over multinationals using low-tax jurisdictions to minimise their tax bills was justified.
Christian Aid
Dodwell claimed that Christian Aid ‘saw fit to indulge in massive exaggeration in its 2008 report Death and Taxes’. There was ‘no support’ for the charity’s estimate of the loss of corporate taxes to the developing world through ‘tax dodging’, he said.
As Tax Journal reported in September 2010, Christian Aid estimated that ‘tax-dodging firms rob poor countries of more than $160bn a year’. That figure included the estimated impact of alleged ‘mispricing’, or false invoicing, and ‘abusive transfer pricing’. Dodwell had criticised the charity’s campaign in an article in Tax Adviser, in November 2009.
However, that $160bn estimate has been revisited in recent weeks. Christian Aid and ActionAid are among more than 100 organisations that signed up to the IF campaign last month. Campaigners said: ‘Dealing with developing countries’ corporation tax gap alone could raise enough public revenues to save the lives of 230 children under the age of five every day.’
Responding to Dodwell’s article today, Joseph Stead said ‘all the evidence’ indicated that developing countries ‘face significant problems in effectively taxing multinationals’. Stead’s detailed response is reproduced below.
Richard Murphy
Dodwell’s article also criticised tax campaigner Richard Murphy’s estimate of the UK’s tax gap. ‘[Murphy] devises his own estimates, without access to the data held by HMRC. He then chooses to add in tax paid late – which clearly isn’t part of the gap. This figure is then used by the TUC and other unions as if it was in any sense comparable to HMRC’s calculations,’ Dodwell said.
Murphy, director of Tax Research UK, told Tax Journal he was ‘bemused’ by Dodwell’s comments. ‘They are a sign of desperation: to accuse NGOs of unethical conduct on tax reveals a man struggling against the obvious tide of morally driven change,’ he said.
Christian Aid’s response
Joseph Stead, Christian Aid’s senior economic adviser, said: ‘[The fact that] developing countries lose vast amounts of tax revenue that should be theirs, leaving public services underfunded, the value of overseas aid undermined, and the prospect of countries ending aid dependency receding further and further into the distance, is acknowledged by more than just Christian Aid; the OECD Taskforce on Tax and Development seeks to address the issue, while the African Union and Economic Commission for Africa currently have a high level panel looking at illicit financial flows from Africa.
‘In the G20, as part of the Development Working Group, there is a team looking at tax issues. It was the G20 which also commissioned a report from IMF, World Bank, OECD and UN for the Cannes summit in 2011, the recommendations of which are mostly, sadly, being ignored. In the UK the International Development Committee of Parliament undertook an enquiry into Tax and Development, recognising that tax is a key issue for development.
‘Whilst these initiatives, and others, may not have identified specific figures on the scale of the impact of revenue losses to developing countries, as Christian Aid sought to do, it is worth noting that there is a range of support both for Christian Aid’s figure, and crucially, the point we are trying to make.
‘The World Bank’s published book Draining Development included a peer-reviewed paper that supported the $160bn figure as plausible.
‘The OECD accepts that the estimates of the totals lost from tax dodging exceed by some distance the levels of aid. Indeed the head of the OECD [said in 2008] that developing countries may be losing up to three times the volume of global aid.
‘Even the accountants accept that transfer pricing is a significant problem for developing countries. PwC [Belgium] did a report for the European Commission looking at the scope for developing countries to increase tax revenues by improving their transfer pricing capabilities. What is noticeable here is that in their upper estimates for all four countries they looked at, they see the potential for increasing corporate tax from multi-national companies to be an extra 50% in five years solely through cracking down on transfer pricing abuse.
‘That developing countries face significant problems in effectively taxing multinationals is the salient point here, with all the evidence indicating that this is the case. Indeed this week the head of the OECD said corporate tax dodging globally, not just in developing countries, is “a threat to democracy” and in the BEPS report he was launching, the OECD acknowledge that what is currently at stake is “the integrity of corporate income tax”.
‘This shows that Bill Dodwell is right when he says that this debate isn’t about to go away, and that business and tax advisers will need to invest more time in helping improve public understanding. We are open and transparent about how we arrive at the figures that we have used (it’s why they are able to be critiqued so much).
‘Companies have been much less open and transparent about their tax policies. There is an opportunity for everyone to work together to create a solution that addresses the issues and myths that Mr Dodwell raises, and come to common understandings as societies in both developed and developing countries on how our tax systems should work.’
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