ADDIS ABABA (Thomson Reuters Foundation) - Backers of a new initiative, dubbed “tax inspectors without borders”, say it can help poor countries crackdown on tax dodging and fund their own development, but advocacy groups on Monday were skeptical that it would work.
Nearly $1 trillion in illicit finance, stemming from tax evasion, crime and corruption, is estimated to leave poor countries each year, according to Global Financial Integrity (GFI), a policy research group.
Developing countries must stop these outflows if they are to achieve 17 new and ambitious development goals, experts said on the first day of a four-day financing summit in Ethiopia.
Under the so-called “tax inspectors without borders” initiative, released on Monday, experts from well-functioning states will help officials in poorer countries carry out audits to detect tax dodging, mainly by multinationals.
“For too long, some multinationals have used aggressive tax planning to reduce their tax bills, or avoid paying taxes altogether,” said Angel Gurria, secretary-general of the Organisation for Economic Cooperation and Development (OECD), which unveiled the initiative together with United Nations Development Programme (UNDP).
“This simply cannot go on”, Gurria said.
Better tax systems would bolster budgets and give governments more funds to invest in social programs. In many low-income countries, taxes as a percent of GDP are under 15 percent against at least 24 percent in advanced economies, International Monetary Fund data show.
Pilots of the tax initiative have succeeded, Gurria said.
In Colombia, tax revenue from transfer pricing audits increased 10-fold in three years to $33 million after OECD advice, Colombia’s Deputy Finance Minister Andres Escobar Arango said.
Mispricing exports and imports is one method some multinationals use to shift their profits to low-tax regimes, and deprive poor countries of money owed them.
Advocacy groups were skeptical that the OECD could act as an impartial adviser, given that some of its members are regarded as tax havens.
In the initiative’s pilot phase, Britain sent experts managed by the accounting firm PWC, which helps multinationals lower their tax bills, to help with auditing in Rwanda, said Tove Maria Ryding, the European Network on Debt and Development’s tax justice policy manager.
“That’s a clear conflict of interest,” she said.
Charities called for broader reforms to make the global tax rules fairer.
“It’s a small part in the jigsaw,” said Alvin Mosioma, executive director of the Tax Justice Network-Africa lobby group.
“So long as we have tax havens across the world that are providing the breeding ground for tax evasion and tax avoidance, we will not be able to have effective capacity for development.”