ActionAid on the global fight against tax havens

Well, happy 40th birthday ActionAid. Beginning as a small London-based child sponsorship initiative, my former employer had grown into a truly global federation of development organisations. Form follows function, and the brilliant decision to relegate ActionAid’s UK office from headquarters to one member of a federation with the same number of votes as, say, ActionAid Malawi is indicative of the radical politics that are rare in an organisation of ActionAid’s size.  I don’t think any other organisation could run a campaign quite like it does on tax justice, something that I’m proud to have been part of.

One of the stand-out moments from my time as ActionAid UK’s tax justice policy adviser was a week of meetings with tax officials in Accra alongside journalist Richard Brooks and ActionAid Ghana’s finance director Emmanuel Budo-Addo, while researching our report into brewing giant SABMiller. Brooks is a former UK transfer pricing official and had plenty of questions ready, but so too did Addo, who had his own experience of the Ghanaian approach to transfer pricing from his time in the private sector. A great learning experience for me!

It’s great to see that, in its 40th anniversary week, ActionAid’s campaign blog is chock full of posts from its tax justice campaign team. I thought I would reflect on a double post by policy adviser Mike Lewis, in which he discusses recent comments about the Global Forum on Transparency and Exchange of Information by South African finance minister Pravin Gordhan.

The background is all covered very well in Mike’s first and second posts, but to recap, the Global Forum is an OECD satellite body that includes tax havens and a variety of developed and developing countries. Through a phased process of peer review assessments, the objective is to raise the bar until the members are all exchanging tax information with each other effectively, so that a tax authority investigating international tax evasion is able to get the information it needs from its opposite number in another member country. The threat of G20 sanctions lurks, and occasionally rears its head (depending, perhaps, on French electoral cycles).

The Global Forum is a bit of a conundrum for campaigners. On the one hand, as Mike explains, it moves slowly and on the basis of a model of information exchange of which they’ve long been critical. French NGO CCFD criticises the Global Forum as follows [pdf]:

The OECD claims to have reached very convincing tax transparency results. However, it seems essential not to claim victory too early, as many jurisdictions have not gone along properly. Austria, for example, has now signed 90 agreements, but only 14 have been judged to be in compliance with international standards.And, above all, the Forum refuses to give any figures on the number of times these agreements have effectively been used to exchange information.

On the other hand, the Global Forum seems to be gathering momentum among developing countries, with 15 African members already. So are the NGOs out of step with developing countries? Not necessarily. After all, two of the biggest, South Africa and India, have both argued that they want more than the current Global Forum/OECD approach. Smaller countries are less likely to speak out in the same way in public, and they have less experience with the current model.

Mike comes up with two reasons for NGOs to stick to their guns. First, he argues,

pushing the Global Forum’s current standards as “the internationally agreed tax standard” risks not giving those countries a real choice in the first place: closing down the political space for developing countries to negotiate whatever information exchange standards they need.

This argument could apply just as much to transfer pricing as to information exchange, although, interestingly, there doesn’t seem to be the same demand from developing countries for the UN to forge an independent path on information exchange – perhaps because the polticisied dynamics of source and residence taxation are not involved.

Second, says Mike,

With a raft of tax havens given the appearance of a clean bill of health within the Global Forum, securely on the list of jurisdictions that have  ‘substantially implemented the internationally agreed tax standard’, we risk depicting the fight against tax havens as being substantially won. I’ve yet to speak to anyone in a tax authority in either the developing or the developed world who believes that’s true.

If you believe the OECD secretariat, this type of language is necessary because of the delicate political balancing act involved in the Global Forum process: moving too quickly or criticising too strongly would risk breaking its consensus approach. Trust us, say the OECD, we’re working on a more ambitious standard.

I am reminded again of transfer pricing, and of one UK Treasury official’s glum words about it. “Transfer pricing,” he said, misquoting Churchill, is “the worst form of international taxation, apart from all the others.”