The Architecture of International Tax
Avoidance- a response
TIDI seminar series, Trinity College Dublin, November 5, 2013
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Morality of tax?
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“It is not possible to construe a director’s duty to promote the success of
the company as a constituting a positive duty to avoid tax”, Farrer and
Co
“Board-level executives often benefit from performance-related reward
packages which are indirectly affected by the amount of tax the company
pays. Corporate tax avoidance is presented as a matter of high-minded
'fiduciary' duty, but it is probably better understood as being about
personal reward," David Quentin, barrister, and co-author of legal
opinion.
But even if you accept the relatively ‘traditional’ view of fiduciary duty,
there is a strong business case for being progressive on tax. eg
reputational risk to those perceived not to pay fair taxes (Amazon,
Starbucks, and so on )
‘Increasingly CFOs when deciding their tax practices are considering
whether they would be embarrassed if the public knew about them”
CFO, large MNC
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Justin King, CEO Sainsbury's
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Daily Telegraph, 5th November 2013
“How we do business, how we put back into the community of
which we are a part, put back into the society from which we
draw our revenues is a moral issue and it’s one that our
consumers have every right to ask us.”
“The vast majority of individuals in this country don’t get to
elect where they pay their tax but some corporations do. I have
a very simple view on it - a corporation should be prepared to
stand up and say what tax it pays and why it chooses where to
pay it - because if we’re doing nothing wrong, which is usually
the thing I hear asserted, then we should have no problem at
all laying it bare to public scrutiny”
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Tax havens?
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More than half of world trade – at least on paper – passes
through tax havens (Shaxson 2011)
More than half of all banking assets and a third of multinational
company investments are routed via tax havens (Palan,
Murphy and Chavagneux 2010),
In 2010 the International Monetary Fund estimated that the
money on the balance sheets of small island tax havens alone
amounted to US$18tn – about a third of the world’s financial
wealth(IMF Working paper 2010)
98 of the FTSE 100 have subsidiaries in tax havens (Action
Aid, 2010)
India, MNCs with presence in tax havens pay on average 30%
less tax per unit of profit than those without presence in havens
( Christian Aid, Who Pays the Price ? 2013)
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Ireland’s role
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“We want to be a part of the solution, not the
problem- Michael Noonan, October 2013
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Are we part of the problem?
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False Profits, 2008 - €5.8bn capital flow into Ireland arising from
transfer mispricing, of which €268m came from the poorest 49
countries in the world (False Profits, Christian Aid 2008)
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Action Aid report- Sweet Nothings, 2013- since 2007, Zambia has
lost out on more than $9 million to a large multinational company,
through in part, the use of a brass plate company in Dublin’s IFSC
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Irish responsibility, or International issue?
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“We will continue to ensure effective collaboration
across Government in achieving our policy goals,
including through joint programming across
Departments in areas such as agri-food industry
development, climate change mitigation, human
resources for health, tax and development, and
peace and security” - One World, One Future- Irish
Aid Policy Paper, 2013
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Spill-over Analysis?
“As the report was prepared for a G-20 Working Group, the
recommendations are, as would be expected, only addressed
to G-20 member countries. The report, on page 27, considers
that “it would be appropriate for G-20 countries to undertake a
‘spillover analysis’ of any proposed changes to their tax
systems that may have a significant impact on the fiscal
circumstances of developing countries”. Although the
recommendation is only addressed to G-20 countries, in any
event there have been no changes to the Irish tax system
since the report was published, that would have adversely
impacted on developing countries.” (Michael Noonan, Dail
Eireann, response to PQ 11th June 2013)
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OECD/BEPS process
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Acknowledged that the current system was broken
Tax law developed 80 years ago has not kept pace
with changing business environment
Integrity of CIT is at stage
If other taxpayers, including ordinary citizens, think
that MNCs can legally avoid paying their fair share
of tax, it will undermine compliance by all taxpayers.
Represents a threat to democracy itself (Angel
Gurria, OECD Secretary General)
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Our recommendations to the OECD on ways that this
process could be improved were:
1.Take effective steps to ensure that developing countries can participate in
the BEPS process on an equal footing, and assist them in implementing
measures to stem their losses from international tax avoidance that deprives
governments of badly needed revenues. Developing country involvement
2.Undertake – jointly with other organisations, policy makers from developing
and developed countries, and independent experts – a rigorous study of the
merits, risks and feasibility of more fundamental alternatives to the current
international tax system, with special emphasis on the likely impact of these
alternatives on developing countries
3.The G20 should urge the OEC D to follow its own recommendations
regarding the duty to analyse the impact of potential tax policies on
developing countries.
4.Governments in the G20 must promote a shift from tax competition to
global and regional tax cooperation
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Research possibilities
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What are the alternatives to arms-length?
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What would a spillover analysis look like in Ireland ?
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Country by country Reporting – impact assessment?
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