KPMG in the UK, in cooperation with Jericho Chambers, piloted the Responsible Tax project in 2015/16 when it became clear new approaches would be needed to find new ways forward on tax1. KPMG International has since then developed the project into a global initiative. This is a summary of the second in a series of high-level global roundtables that will help us all shape debate, thinking and eventually action on global Responsible Tax. The conversation was held under the Chatham House Rule – among a number of business leaders2, NGOs, faith leaders, academia and tax experts - and as such this note has been drafted to preserve the principle of non-attribution and capture the main conclusions only. You can follow the project as it progresses via the dedicated web platform.

Responsible tax in the Developing World a key challenge

From very early on in this project, the role of Responsible Tax in the Developing World has been recognized as a key challenge. Jane McCormick’s article Developing Thinking on Responsible Tax made it clear that "in a world where 0.7% of the global population owns 41% of its total assets, it is difficult to argue without reproach that the current global economic system is working fairly and well for all", and that further debate was needed. The focus on the complexities of tax in the developing world prompted some deep and progressive thinking on the essence of taxation and how it contributes to the “common good”2. Why is Responsible Tax in a developing economy so crucial for stability, infrastructure projects and social inclusion? What is the responsible approach for taxes and taxation to enable the developing world to flourish? What is everyone getting wrong - or maybe sometimes right? What needs to change?

Identifying the need for large scale changes

Overall, it was recognised that the current system requires large-scale changes. There is a strong will among representatives from markedly different sides of the debate (business, NGOs, advisors) to create a space in which we can build trust again – a collective, with a mix of skills to shape a tax system for the future. This need is especially acute for professional service firms who need to regain the trust of stakeholders. There is a sense of impatience to get down to actions, but we cannot forget or take shortcuts on the important step of building trust and cohesion – something that is lacking at this point in the international regulation space. We need to maintain and build on the dialogue we have created to create the critical mass necessary to bring about real changes and create a new tax system for the developing world.

**Four **key points and actions arose from the discussion:

1. It is about development, not just redistribution.

A more positive approach to ushering in an era of ‘fairer’ taxation requires different sides (business, government, NGOs, civil society) to work together and pool knowledge for effective capacity building in developing countries. This means creating sustainable tax systems that are broad-based, well-funded and administrable, accounting for complexities unique to each country - and fairly serving the interest of multiple parties. It means clearly defining the roles each side has to play. Sustainability is key. Tax will be part of (but not the only factor in) creating stable development.

2. Different sides need to overcome current barriers to a positive dialogue.

Common misconceptions must be identified and dispelled. NGOs are not anti-business, MNCs are ready to participate in the positive transformation of developing countries. Headline statistics (especially regarding inequality) are useful for drawing attention to the issues, but should be supplemented with information that adequately conveys the complexity inherent in a global economy, and that is part and parcel of conducting business in the developing world.

3. The tax debate can be infused and/or guided by principles that go beyond a purely profit-oriented approach.

Leaders of business can use long-termism, common good, as well as traditional economic thinking to help decision-making on tax matters. Although small tangible actions are required first and foremost, bigger picture thinking about commitments to common good, and even the rebirth of economics can be deployed to change the conversation on tax. If taxation was more widely viewed in terms of a social contract/ compact, this may increase co-operation.

4. The cornerstone of effective action to ensure a new, more positive compact on tax in the developing world will be a constructive dialogue.

Tempting as it is to take immediate actions, there is still a lack of trust between operatives in this space. In the here and now, the positive impact of small changes under the current system should not be underestimated, and all sides can make sure all parties play by the book. To add further momentum to the Responsible Tax movement it is absolutely essential to continue the dialogue between the different sides. Joint action will create critical mass essential for driving real change.

Key themes

Beyond megaphone diplomacy – dissolving myths and misconceptions to create a compact for development

  1. Commentary on tax is rife with blockbuster statistics, some of which can be disproven if scrutinised, though busting these myths is much harder than creating them. Consequently, those working in the tax space have to deal with the common misconception that developing countries just need to access or reclaim a ‘pot of gold’ (the myth extends that this is hidden in tax havens) in order to solve financial shortfalls. While some companies have engaged in aggressive tax avoidance and this needs to be addressed, the amounts at stake are not sufficient to fund the sustainable development goals. In fact, the solution lies in practical action – participation on the part of business, regulators and communities to create broad based tax systems and prosperous economies. A key point to the debate is that it is about development, not just redistribution. One of the key issues developing countries face is the size of the informal economy. So the tax system needs to address this while also being able to support SMEs.

“We must exercise responsibility to build responsibility…”

  1. There will not be a centralised, international ‘blueprint’ for a solution that fits all countries. Each country has different systems and priorities.

  2. Another myth holds that MNCs can easily plug gaps in countries’ revenues if (simplistically) they don’t engage in transfer pricing. A narrow focus on corporate income tax is, furthermore, unrealistic – corporate tax often represents only a small slice of tax revenues in any country. Moreover, an over-focus on corporate income tax is undermining trust and distracting from a more holistic view. The truth is that most MNCs accept the need to pay an amount of tax appropriate to their earnings/ profits, and that complying with tax law in developing countries is not always an easy endeavour. A shift in focus towards positive, inclusive development would create sustainable tax systems that are broad-based, well-funded and administrable. It was noted however - although not unanimously agreed – that there is a fundamental flaw with the arm’s length principle in transfer pricing but it is difficult to think of a better, practical solution. Furthermore, the complexities of transfer pricing theories do make it hard for developing countries to apply them and there is a risk they will struggle to keep up with the new refinements proposed by the OECD as part of the Base Erosion and Profit Shifting (BEPS) project.

  3. NGOs are not all anti-business. Another popular misconception holds NGOs lack administrative competency to create self-sufficient sustainability over dependency. Similarly, the private sector is neither hero nor villain.

  4. The truth is responsibility is about helping make others responsible – not just taking responsibility – and this aspect (the ‘responsibility’ of development) must be baked into the Responsible Tax remit and clearly expressed. This will avoid the temptation to think simplistically, in terms of silver bullets.

How can business, government and civil society come together to ensure effective capacity building for tax systems in the developing world? 

  1. We must accept business has moved on. The environment in which it operates has changed and many businesses now acknowledge a broader range of stakeholders and a responsibility to foster economic development in their areas of operation. MNCs need to be more effective in the way they articulate corporate readiness to play a part in positive transformation of economies in the developing world. Contrary to popular belief, this is an open door.

  2. More broadly speaking there exists a tension in society between the short-term and long-term view of how benefits brought about through business manifest themselves. Having a clearer-cut consensus on priorities would make it easier to do the right thing. There is a need to educate investors that tax is not just a cost to be managed but an investment.

“We want to create a tax system that is not penalising a business for making an investment. In terms of business – benefits will be felt if a tax law is clear and simple”

  1. Collectively, we can all identify areas where tax systems are not working – notably the vicious circle brought about by a combination of inadequate laws, poor accountability, poor skills capacity, high-risk environments and resultant lack of and/or poor diversity of investment – and think how best to tackle these problems. Those dedicated to improving tax systems must take into account the highly complex nature of some industries – particularly the extractive industries – operating in the developing world. A meaningful dialogue between business, policy makers, tax authorities and civil society can help break this vicious circle.

  2. Building skills capacity is the first step towards building a healthier economy (and therefore tax tale/ regime) in any country.

  3. Transparency can be a double-edged sword (this view was not held by all parties). The key point about transparency is not necessarily the disclosure of data, but rather the shared and open ambition of all parties involved in building skills, capacity, resource and ultimately revenues.

  4. All taxes are ultimately paid by humans – investors, employees or customers. Basic principles provide useful foundations for developing better systems where there is so much complexity. There’s agreement across different sides in this space that: tax is the price we pay for a civilised society; the burden should fall on those who can most afford it; tax is about the rule of law taxation should be efficient, and governments should be transparent and accountable. However, some argue that a fundamental commitment to common good is required; others that a rebirth of economics itself is required because the current system is broken

  5. The Responsible Tax community can nonetheless be pragmatic about the positive benefits of economics in current form – and effectively socialise these. Good work exists under the current model. There is a point of economic development where evidence shows an exponential gain for society. Senegal provides a good example – a nation that has experienced clear, holistic benefits within the current system.

  6. Some argued that business’s primary goal is not to pay tax – it’s to make things. If the starting point is that businesses are not charities but they do need a flourishing society in order to be successful and they create transactions from which a series of good things can flow which can help achieve this, more people might be engaged in the debate on tax in the developing world. Acknowledging people in reality don’t want to pay more tax than they owe pre-empts the need to also clearly benchmark how much is too little - before going a step further and reframing the meaning of tax.

What are the specific barriers to overcome and what practical actions are needed?

  1. We need to think why we are around this table. If people want to do the right thing but aren’t yet managing to do so across the board, we those participating in the Responsible Tax in the Developing World debate need to identify and overcome barriers to progress. Is it governance? Lack of political will? Lack of understanding and/ or a concerted effort to honour the spirit as well as the letter of the law?

“What we want to create is a virtuous circle – stability encourages investment, which then creates more stability.”

  1. In Africa, a real issue to tackle is political will (or lack thereof). It is also true that not all companies are “doing the right thing”. When all stakeholders “play by the book”, you develop trust.

  2. For many industries it is about what frameworks are used to make choices and articulate investment, risk and benefit factors – which is never easy to do. Businesses need legal certainty, but also room to accommodate the moral dimensions and ethical elements to tax decisions. ‘Doing the right thing’ is a difficult term particularly when different stakeholders have different interests. CEOs can maybe look to legacy as a tool to support and enforce ethical decision-making.

  3. A positive step forward would be to rearticulate the role business has in creating a stable economy (after all economy is just a Greek word for house-keeping – creating a dependable environment for humans to flourish). People have lost sight of the notion that business flourishes as it ought within a stable social environment, when building long-term capacity and social goods. There is no reason why ethics shouldn’t be pragmatic in this instance.

  4. A starting point for developing a tax system should be to look at the broad macro-economic picture – what capacity does the economic system in question have for taxes to be paid? If an economy is not generating profits it is difficult to raise tax. The second step is to look at what is the most efficient, and fair, way to generate raise tax. Finally the structure of the tax system then enables you to decide what skills and capability are required to administer it.

“We need to overcome mistrust – when taxpayer meets tax man the immediate thought bilaterally is ‘these guys are here to rip us off’. All international tax issues are new and what you don’t know you don’t trust. We need to bring about a wider understanding on how the value chain works”.

  1. To make a difference – broaden the scope of the debate. Although there is agreement in this room, outside it there is mistrust and many businesses who are not playing ball. Who wants to compete with someone who isn’t playing the game? Those engaged in the Responsible Tax debate have a commitment to help move these people. The question then becomes how to bring in a real community, not just a few virtuous people and how to create a neutral, constructive dialogue in a multinational setting?

  2. Transparency towards tax authorities is very important. The tax authorities in developing countries were supporters of the OECD, country by country reporting initiative (BEPS 13). The need for companies to be more transparent is clear but there is a legitimate debate about the form of public disclosure. The key questions are who needs what, when and why? At the same time, transparency and initiatives like country-by-country reporting are also aimed at helping people hold their countries to account. Transparency is as important for governments as it is for companies. Public country by country reporting would be of little use to a tax authority but may help with accountability. However some NGOs have helped some developing countries to understand publicly available tax data. Pressure to do the right thing can also be exerted, from the ground-up, at community level.

Can a group like this forge a new settlement?  

  1. Tax can be looked at differently – not just as a static contract between companies and people, but as the social contract. People and communities can be brought into the picture to create a dynamic tax/ society base that enforces consistent good governance moving forward.

  2. The question is whether people operating in the tax space work with current systems and make them better. But that will only go so far: one can only finesse a broken system. Together the Responsible Tax movement can aim for an alternative, more fundamental rethink in the context of values and beliefs. It is essential to create a platform as a basis on which to move forward. The ultimate question is how to muster political momentum that enables people to form new ways of addressing the issues.

What next?  

  1. Expand and make maximally inclusive the conversation about these issues. Civil society, government, tax-payers, administrators to all be involved. For an institutional revolution to come about, a strong and permanent dialogue is needed.

  2. To reinstate trust in the system a charter of trustworthy tax practice should be constructed and then maintained. This is not necessarily enforceable regulation as such, but something that all practice can be measured against. Providing all players are realistic about what can be delivered (in terms of money and behaviour) this can be a ticket to bigger conversations.

  3. Skills-building is hugely important but most especially emphasis should be placed on the building of appropriate skills, mindful always that there is no one-size-fits-all solution.

  4. Leaders (of NGOs, businesses, advisories and government) need the courage to accurately describe the current situation and use this as a basis for determining a path forward. Then the Responsible Tax community can start instating clearly defined roles and enthusiastically set to with mentoring and training. Governments must make sure policies address the issues, administrators ensure maximal tax certainty, and so on. Everyone needs to know exactly what they are supposed to do. In doing this – think about the small things. There’s a whole lot of action to be taken in the middle ground that can be agreed on quickly.

  5. The Responsible Tax community can promote and profile good examples. The idea is to make sure tax is not seen as a bad thing. Tax as the contract between business and society is a good thing.

  6. Concrete actions can play out less in policy and more in process. Leaders in the Responsible Tax community can set about about creating an ecosystem, not a hierarchy.


1 Part of this work was delivered by the think tank Common Vision

2 Mary Baine, Head of International Tax, ATAF; Maya Forstater, Sustainability Research, Center for Global Development; Melissa Geiger, Global Head of Tax and Acting Group Treasurer, GSK; Janine Juggins, SVP Global Tax, Unilever; Batanayi Katongera, Head of Transfer Pricing, Macfarlanes; Neal Lawson, Partner, Jericho Chambers; Ross Lyons, Head of Tax, Rio Tinto; Madeleine McCarroll, Manager, Governance & Transparency, B-Team; Jane McCormick, Global Head of Tax, KPMG International; Alan McLean, Executive Vice President Taxation, Shell; Girish Menon, CEO, ActionAid UK; Chris Morgan, Head of Global Tax Policy, KPMG International; Will Morris, Director of Global Tax Policy, GE; Robert Phillips, Co-Founder, Jericho Chambers; Claire Spoors, Policy Adviser – Tax and Inequality, Oxfam; Neil Thorns, Director of Advocacy and Education, CAFOD; Lord Rowan Williams of Oystermouth, Master, Magdalene College