During the first conference of the Platform for collaboration Tax, “Taxation and SDGs” (the UN Sustainable Development Goals), held in New York, 14 16 February 14-16, 2018 KPMG hosted a side event entitled The Role of Responsible Tax.
The event was chaired by Chris Morgan, Head of Global Tax Policy at KPMG International and the panellists were Toby Quantrill, Global Lead on Economic Justice with Christian Aid; Maya Forstater, Visiting Fellow at the think tank the Centre for Global Development; Alan McLean, Executive Vice President Taxation and Corporate Structure, Royal Dutch Shell; and Mary Baine, Head of International Taxation, African Tax Administrator’s Forum (ATAF).
“And And” not “Either Or”
Chris Morgan started by noting that UN Sustainable Development Goal 8 (SDG 8) calls for inclusive economic growth while SDG 10 calls for the reduction of inequality within and between countries. Often the two aims of supporting economic growth and redistribution are considered to be opposites. The first is associated with reducing corporation tax and tax on entrepreneurs while increasing sales tax such as VAT. The second points towards reducing sales taxes, making personal income tax more progressive and possibly increasing corporation tax. In order to achieve the SDGs it is necessary to combine both approaches - to have a system which is fair, redistributive and also sustains economic growth. It is a question of “and and” not “either or.” This is why responsible tax is critical to achieving the UN agreed goals.
The panel then illustrated the importance of responsible tax by presenting some of the arguments raised in the Jericho Chambers publication “Responsible Tax and The Developing World”, co-edited by KPMG and Jericho Chambers.
Responsible companies and a responsible dialogue
Alan McLean started by noting that a whole range of attitudes can be found within and among companies. Some take a responsible attitude on tax planning and transparency towards stakeholders. Others less so. Should responsible companies seek to distance themselves from the “irresponsible”? Alan’s answer was they should try to influence the corporate population. He noted that this is what the B Team1 is attempting to do through publishing its Responsible Tax Principles and encouraging other companies to sign up to them.
Maya Forstater, noted that in the tax debate sometimes there is a narrative that a “pot of gold” is to be found by addressing tax avoidance by multinationals in the developing world. Such sums could pay for health, education, etc. in some of the poorest countries. However, while avoidance and base erosion and profit shifting (BEPS) are real issues, often estimates of the potential revenue at stake are taken out of context and inflated. Overstating the amounts available from multinationals can lead to unsustainable expectations and deflect focus from where it is needed. While it is important to address BEPS issues, we should recognize that domestic tax policies such as property, personal and tobacco and alcohol taxes, reviewing tax incentives, improving collection of VAT, tax morale and capacity building are also important. Maya referred to findings in her paper, Tax and Development: New Frontiers for Research and Action, in which she estimates that focusing on international tax rules could increase the tax take by just over 1% in developing countries whereas changes accessible through domestic tax policy and administration increase it by 10%.
What do developing countries need?
Mary Baine noted that in many developing countries there is a problem with wasteful tax incentives and a failure to carry out a robust cost to benefit analysis and monitor whether they are effectively achieving the desired effect. There is evidence of some companies negotiating for tax incentives to invest in developing countries and then reincorporating or forming a new related company and moving on to the next country as soon as the incentive expires. Even more common is the situation where, say, mining companies stay in countries for extended periods abusing what is termed as a “sunset clause”. The prevalence of double tax agreements which are out of date and do not represent the interests of developing countries also poses a loophole. The capacity of tax authorities is a continual issue - which is not helped by staff being poached by the private sector once they have been trained by the tax authorities. There are issues in obtaining relevant tax information and being able to use and interpret it. And even more significant is the complex taxation of a huge informal sector which is another area which creates significant tax leakage as more and more companies/businesses try to remain in this category for obvious reasons.
Mary concluded that change in the developing world requires political support and allowing tax authorities to act with autonomy.
Toby Quantrill noted that tax should be seen as one part of a bigger development picture. There has been a collapse of trust in the functioning of tax regimes but also in the economic system in a wider sense. People in developed and developing countries feel that current structures do not work for them but only for those who control the status quo. When it comes to discussing tax specifics there is an issue that different stakeholders often want different things and this needs to be recognized and accepted if the debate is to be moved forward.
Toby thought that there had generally been an underestimation of how difficult it will be to obtain significant change in the corporate tax world and this is partly because many stakeholders have an enormous investment in the status quo. He noted that NGOs like Christian Aid are very keen to support transparency, such as public country by country reporting and public registers of ownership, as this will throw light on the debate and help rebuild trust.
Does tax transparency help?
Alan picked up the transparency points in the following discussion. He noted that the extractive industry has been at the forefront of reporting, partly due to the nature of the contract between extractive companies and the communities in which they operate and partly to address certain stakeholder challenges over the actions of some groups in the past. He thought that many companies which had embraced transparency found it was not as “scary” as they had thought. He concluded that the trend towards some form of public country by country disclosure was unstoppable. Mary also noted that obtaining the right information means everything when it comes to collection and enforcement. She felt that public country by country reporting would be useful for developing countries especially as there are limited networks for obtaining exchange of information through tax authorities. Nevertheless having the ability to use the information is even more important. Mary also noted that there is a real risk with public information of misreporting or misuse by the media particularly where the information is of a high level nature, such as the case of country by country reporting.
Shared solutions and real change
In conclusion Chris notes that five years ago no one would have thought that people from such different backgrounds and starting points would have been contributing to a booklet like “Responsible Tax and The Developing World,” let alone expressing such common concerns. It is clear that all the stakeholders in the debate are not going to fully agree on everything, and may significantly disagree in some areas. But as Toby said, it is important for everyone to be clear on their starting point, what they want from the tax system and to listen hard to all voices. That way it is possible to find shared solutions and bring real change.
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...