Last week, from 14 to 16 February I had the pleasure to attend the first conference organised by the Platform for Collaboration on Tax1. The conference focused on the role of raising tax in order to finance the UN Sustainable Development Goals (SDGs). It was attended by 450 delegates including finance ministers and officials, tax commissioners and members of revenue authorities, NGOs, academics, a number of business representatives, and of course members of the Platform’s constituent bodies.
The format was a number of plenary sessions, some contemporaneous panel discussions, and side events organised by participants in the morning, evening, or at lunch. Below I’ve touched some points which came out of the meetings I attended. But what struck me the most was the overall tone. Sometimes the tax debate is marked by polarised and heated views and exaggerated claims. It is true that there were a few participants who, it appeared, wanted to claim that the SDGs could be paid for simply by stopping tax avoidance by multinationals or that the only problem is tax havens. However, most participants - especially the government representatives and the members of international bodies - focused very much on the key issues for increasing the tax take in developing countries.
Does the tax:GDP ratio matter?
It was noted that, according to the IMF, a country needs to be raising something like 15% of GDP in tax before it reaches the point where it is able to provide a level of social goods required to sustain development. There are a number of developing countries which are still below this threshold – Nigeria is about 6%. One contributor suggested that the 15% figure was too low and that countries should be targeting 25% plus. However, this was countered by others who felt that the ratio is very much dependent upon a country and its circumstances. While there is always the point that “you can do better,” setting a fixed target for all does not make sense.
BEPS and responsible tax behaviour
The problem of base erosion and profit shifting (BEPS) was obviously one of the themes, both in main sessions and in break outside sessions. In a side session a revenue official described how they had a situation of a company simply lying about the value of exported goods in order to manipulate the transfer price. Unfortunately such behaviour does exist. However the shock among business representatives was no less than the general condemnation of such behaviour.
It was welcoming that a number of representatives from founder member companies of the B Team were present. The B Team had launched its new Responsible Tax Principles at a meeting on the Tuesday before the Platform conference started and these principles were put forward as examples of companies who are committed to responsible tax management.
As can be expected it was noted that developing countries were not “at the table” when the OECD kicked off the BEPS project, and there was some discussion about how relevant much of the output is for them. Nevertheless there was general support for the Inclusive Framework and it was noted how some countries had significantly increased the tax take by adopting a lot of the new global standards and best practices.
One interesting provocation was launched in a plenary session by a speaker who said that any methods for apportioning profits (whether by traditional transfer pricing or by a formulary apportionment) are a fiction. A multinational earns a $1 of profit through transacting between its subsidiaries and it is not really possible to split that $1 scientifically between the different entities. If we apply a fiction to split the tax base, why not change it and look at allocation based more on the needs of countries? (It was recognised that the difficulty would be agreeing a method and providing certainty - but it certainly gave food for thought!)
Illicit financial flows (IFFs)
The definition of IFFs was one area where there was significant disagreement. There were arguments that the definition should cover BEPS and tax avoidance because, from a revenue perspective, the effect in lost tax revenue is the same as evasion. The counterargument put forward was that these are (largely) different phenomenon and require different solutions. Avoidance can be addressed through law and dialogue (witness the whole OECD BEPS initiative) whereas evasion, money-laundering, corruption and other illegal activity requires forensic techniques and enforcement. Put simply, you can’t sit down and negotiate solutions with criminals.
Capacity building and access to information
Capacity building was a recurrent theme. It was noted that many countries needed more tax officials and better trained ones. Poor pay and the issue of trained tax inspectors being poached by the private sector was raised. Another theme was the need to access data and, above all to be able to interpret the data. A number of countries are recruiting data analysts. Many delegates supported public disclosure of tax information to ensure that developing countries can get it even where the official inter-revenue authority mechanisms are not in place. Interestingly, it was a member of the African Tax Administration Forum (ATAF) who also noted the risk of the media and campaigners misinterpreting or misusing such public information.
Domestic issues
The focus was not always on international issues. Frequent references were made to the difficulty of taxing the informal economy and the fact that compliance is often poor. It was noted that greater transparency on revenue collection and expenditure, and better administration, could help drive greater taxpayer morale.
Medium term revenue strategies (MTRS)
The concept of a medium term revenue strategy was also strongly proposed. In her opening address by video, Christine Lagarde stated MTRSs will be critical to achieve the SDGs. In a plenary session it was explained that a MTRS requires considering tax policy, revenue collection and the legal system. It must include a timetable and resourcing and needs strong ownership and political support.
Specific issues
As well as dealing with the more generic areas of domestic resource mobilisation there were a number of sessions and side events focusing on specific issues such as tax and gender equality, taxing for health, the telecoms and extractive sectors, and environmental taxes. As regards to the latter there were interesting differences in approach. In Chile it appears that environmental taxes are intended only to change behaviour; therefore an increase in car tax revenue was seen as a failure as it showed more cars were being purchased. By contrast it was noted that carbon tax is a significant revenue raiser in France. The central dilemma of environmental taxes was explored – if they do change behaviour, they do not raise tax; if they raise tax, it indicates they are not working to protect the environment.
Some final thoughts
This was the first of the Platform’s global conferences and, I believe, lived up to its mandate to hold a “global dialogue on tax matters.” A request was made that stakeholders raise issues for the Platform to address in future and I hope it will become a place for real dialogue, agreement and decision.
The conference press release commits the Platform to strengthen international cooperation, build institutions through medium term revenue strategies, and promote partnership and stakeholder engagement. It sets out 14 “Actions to take the tax agenda forward,” and I will be looking to see where KPMG can contribute to achieving them.
My final point is that, with the exception of the B Team representatives, the business community was underrepresented. It would be good if more companies, and advisers, who are prepared to embrace responsible tax principles such as the B Team proposes, would actively engage with the Platform and the global debate.
by Chris Morgan
Chris became Head of Tax Policy for KPMG UK in 2011. In this role he was a regular commentator in the press, as well as on radio and TV, led discussions on various representations with HMRC/HMT. In 2014 Chris spearheaded KPMG UK’s Responsible Tax for the Common Good initiative. In September 2016 Chris took on the role of Head of...