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Newsroom & speeches
27 January 2010
I am delighted today to be speaking at this first ever meeting of the OECD Committees responsible for fiscal affairs and development assistance.
We meet with the political context for discussions of tax and development changed dramatically over the past year. And that presents this group with real opportunities.
I want to set out today four key areas where we can together make big improvements to international tax transparency. And where we can ensure that developing countries share in the benefits:
I want to underline that the UK stands ready to work with others for quick progress on these issues. But that it will require the artificial barriers between tax and development policymakers to be removed by groups such as the one that’s come together here today.
Let’s start by reminding ourselves of how far we’ve come.
Since the financial crisis of 2008, we’ve seen a radical shift in the approach to tax transparency around the world, as a result of three key factors.
First the crisis focused all our minds on the dangers posed by a lack of transparency in international finance.
Second, the crisis, and the huge support to the financial sectors from governments around the world, has forced politicians to look hard at the social contract between key economic actors and the wider public. Whether you’re a corporation or an individual it has become increasingly unacceptable for you to use your resources to avoid your fair share of the burden.
Third, frankly, in an environment where tax revenues have been hard hit by recession governments are taking a much tougher line on tax evasion.
International reform has followed, and through the UK’s presidency of the G20 and through the OECD:
As a result the world has become much tougher for those who bend the rules on tax and for those who break them. Tax evaders are finding fewer and fewer places to hide.
Our next task is ensuring that developing countries share in the benefits of these changes, to make good the G20’s promise in London that developing nations would benefit from the new tax transparency.
We have already revamped and expanded the Global Forum on Tax so that developing economies are included alongside developed ones. And we need to consider how developing countries can be further integrated into the forum’s work. Around 90 developed and developing countries are now members, and there is scope for more to join.
This is about justice and fairness, as the NGOs have done such a good job of reminding us. But it is in the interests of developed countries too.
Tax evasion costs developing countries billions each year in lost revenue - a major drain on often fragile economies and a genuine barrier to economic growth. These are vital resources for schools, hospitals and infrastructure.
Research suggests that developing countries lose at lease $50 bn per year, and perhaps as much as $280 bn in corporate profit sharing and evasion by individuals.
Meanwhile for developed countries to retain the confidence of our publics and parliaments in the case for international aid in a much tighter fiscal environment – as we must – we will have to show that our partners are doing their part, and building the state apparatus that will underwrite a sustainable future.
Spreading the net of exchange of information will bring benefits for us all.
There are four things we need to do.
Helping developing countries to exchange information with the rest of the international community will be crucial.
There are a number of ways we can do this. We must look first to existing mechanisms such as the Council of Europe and OECD Convention on mutual administrative assistance and multilateral Tax Information Exchange Agreement, and ensuring their benefits are available to developing countries.
I understand the CFA was able this morning to reach a welcome consensus, enabling us to proceed swiftly. And I can announce today that the UK has committed to be part of a multilateral arrangement by the end of 2010.
Our first action will be to seek developing country partners willing to join in this venture. In early February I intend to write to a group of developing countries who could benefit suggesting they should join.
And in parallel we will look for partners in the OECD to join us. I would encourage others here to do so, and to work with us for agreement with developing countries that share the commitment to international tax transparency.
Of course, exploring multilateral negotiation of bilateral tax information exchange agreements will continue to be important too. The UK worked together with colleagues in the Netherlands, in co-ordinating negotiations between OECD countries and jurisdictions in the Caribbean, leading rapidly to bilateral TIEAs in the region consistent with the international standard. I very much hope more OECD countries will get involved in this type of initiative.
While we pursue this immediate priority of multilateral exchange we should also plan for longer-term goals. Let’s commit to exploring thoroughly what other mechanisms could bring for developing countries in the future.
I would like to see us take a hard look at automatic exchange of information and transparency over beneficial ownership. We need to build the evidence base for future action.
We are still a long way from global automatic exchange of tax information, but that must be the destination we are heading towards. Governments of developed and developing countries should work together to explore the benefits and challenges of automatic exchange of information and beneficial ownership transparency.
The interest and controversy that Country-by-Country reporting has stirred up is not a bad gauge of how interesting this is as a tool. I now want to get beyond that debate and see whether this is a workable, useful tool for international transparency.
There should be transparency about where companies earn their profits and where they pay their tax. For people and companies to be part of the global economy they have to be willing to provide tax information.
Non-Governmental Organisations and Civil Society Groups are already demanding that multinationals report on a country by country basis. But there is no internationally recognised framework for them to follow.
That is why, at the Second Conference on the Fight against International Tax Fraud and Evasion in Berlin last June, I argued Country-by-Country Reporting was an issue international policy makers needed to consider. And then, following the Anglo French Summit last July, the British Prime Minister and French President called on the OECD to examine it.
I have read the OECD’s initial work, and I fully support the recommendation that we develop multinational guidelines in this area. I now call on the OECD to look at the feasibility of introducing multinational guidelines on Country-by-Country Reporting through a full and open consultation with Governments, multinationals and Civil Society partners. And I hope everyone here will support that call.
The framework would provide a consistent basis for all multinationals to follow, and establish international best practice.
I would stress that work to develop such guidelines should not impinge on the IASB’s current work on extractive industries, which the UK fully supports. I understand that a discussion paper is due to be published in February and I look forward very much to reading it.
I believe that through these combined approaches, we can make decisive progress.
The approach to transfer pricing guidelines is linked. The OECD has clear guidelines on a comprehensive transfer pricing system. We have internationally agreed rules on transfer pricing that determine which country can tax what profits where a group operates in more than one country.
They reflect international consensus, prevent double taxation that would inhibit and distort trade and, they are widely understood.
Country by country reporting should build on and complement the OECD transfer pricing guidelines, and not cut across or duplicate them.
Turning to the fourth area, we still need to help ensure developing countries are in a position to benefit from all this action. Capacity building is at least as important as action in this forum to open up tax information to developing countries. And there has been good progress.
We have seen the launch of the African Tax Administration Forum - I am pleased the president is here and will be addressing us - already coordinating an effective collective voice and improving the mobilisation of domestic resources.
The UK already does a lot of work bilaterally on capacity building and has also been pleased to support AFRITAC, the African Regional Technical Assistance Centres, providing excellent technical assistance across a number of fields including revenue policy and administration.
I applaud that progress. But we need to do more, particularly in the technical parts of tax work, and so the UK tax administration stands ready to host a conference focused on the technical work of tax administrations in developing countries.
It will be an opportunity to explore practical issues. I hope the meeting will take place toward the end of this year.
So the global economic crisis and the response to it has changed the political environment. Tax transparency has risen up the agenda. There is a new momentum for change.
We have seen compellingly in the past year how groups such as this, acting in a coordinated and determined way, can find common ground when it counts, and make real progress
We have an opportunity here to help ensure developing countries benefit from the new tax transparency – that our promises are made good.
We can start the work together, building on the progress of the past year, for more effective, fairer international tax arrangements. The UK stands ready to work with others on:
I hope very much we can work together on these initiatives in the period ahead, and fulfil the promises made to developing countries on our behalf.
Thank you.
