Andrew Goodall

Country-by-country reporting: Ernst & Young’s head of tax enters the debate

Ernst & Young's head of tax policy in the UK has claimed that country-by-country reporting may be of little or no benefit in tackling international tax evasion. Writing in the Tax Journal, Chris Sanger said the debate would continue but "it is unclear that [country-by-country reporting] would in practice bring much, if any, benefit, as the information is already readily available to each of the tax authorities and we are now seeing much greater cooperation between them". The reform "may merely result in the production of information that is arguably meaningless without detailed context and yet still costly to produce," he suggested.

The UK government has said it is discussing with international partners whether reform could offer an effective way of improving tax transparency. Campaigners have argued that international accounting standards allow multinational groups to declare one figure in respect of worldwide profits. Christian Aid said: "There is nothing that says they must report how much money they make – and taxes they pay – in every country in which they operate. This opens the way for all manner of tax dodging, legal and not so legal."

Sanger asserted that the Oxford University Centre for Business Taxation's recent report for the Department for International Development "disputed" one of the "assumptions" behind interest in the issue of tax evasion, namely that there is a large "tax gap" driven by evasion.

That report's authors concluded that "most existing estimates of tax revenue losses in developing countries due to evasion and avoidance are not based on reliable methods and data". But they also recommended further research to improve understanding of the implications of avoidance and evasion for developing countries.

I'll have more on country-by-country reporting soon.

Sanger also criticised proposals for a voluntary code of practice for banks, claiming that, in contrast to certainty provided by legislation, " a subset of taxpayers are being asked to constrain their behaviours to those that HMRC, as tax authority, believes would be the view of MPs". The code would require a bank to undertake not to promote arrangements that "would give a result contrary to the intentions of parliament".

The current issue of Tolley's Practical Tax newsletter (31 July) has more on the bank code and other developments including:

• Amanda Sullivan reports on the July 2009 meeting of the Joint Forum on Expatriate Tax and NICs
• Government targets 'false self-employment' in construction industry
• HMRC responds to consultation on 'Your Charter'

Global poverty – DFID white paper on country-by-country tax reporting

The UK government is discussing with international partners whether initiatives including country-by-country reporting of tax payments "could offer an effective and suitable means of advancing the tax transparency agenda". This is good news. The announcement follows DFID's publication of a report that suggested that many estimates of revenue lost to developing countries due to tax evasion and avoidance were not based on reliable data. But that report also made it clear that further research is needed, and it recommended a number of possible directions for further research to "improve our understanding of tax avoidance and evasion and the implications of these activities for revenue mobilisation in developing countries". The World Bank and others have left it to a handful of committed individuals and a few NGOs to provide the only meaningful research available so far.

Yesterday's white paper Eliminating World Poverty: Building our Common Future said this about taxes:

1.28 Our common prosperity depends on shared, sustainable growth. Britain's fastest growing export markets are low and middle income countries. Today there are more middle income people in India than the entire population of the United States. We all suffer from weak financial regulation, the financial impact of imbalances in trade, and the action of tax havens.

2.1 It is easy to see why growth matters. It creates the livelihoods that support growing populations. Higher incomes lead to a reduction in infant deaths, increased school enrolment, and give us greater freedom to make our own decisions about our lives. Growth provides the tax revenue for states so they can fund public services, build accountable government and reduce reliance on external support. Growth provides countries and individuals with a ladder out of poverty.

2.9 ... Ineffective taxation undermines countries' ability to provide the basic services that underpin fairness as well as growth.

2.34 ... We will help countries establish sound taxation systems [and] make it easier for developing countries to benefit from the new co-operative tax environment.

2.44 Prosperity is not just a matter of good economic policies. A fair and sustainable market economy depends on an effective state and strong political commitment. Without this enabling environment, individuals and firms will have no confidence to invest for the future.

2.45 The UK has supported improved governance for more than a decade. It has never been more important than in this downturn and recovery. Systematic political economy analysis is needed to inform our approach to growth, to identify policies that have broad political support. This is particularly important in fragile and conflict-affected countries.

2.46 Effective tax systems are central to effective states. Raised in ways that encourage economic growth and promote political accountability, taxes provide the resources to fund public services, leading to an eventual exit from aid dependence.

2.47 The UK will consult on a proposal to create a new International Taxation Centre to improve research in this area. The Centre would be a partnership hosted by a research institution and would work with international partners such as the International Tax Dialogue. It would help developing countries build the legitimacy and effectiveness of their tax systems.

2.48 There is increasing concern that tax systems in developing countries are undermined by international banking secrecy, including in tax havens. The London Summit made real progress on this issue, and the UK will work to ensure that the commitments on standards and sanctions are met, as well as the decision to develop proposals by the end of 2009 to make it easier for developing countries to benefit from the new co-operative tax environment.

2.49 The UK believes it is important for all jurisdictions to implement their commitments to the international standard for the exchange of tax information and will work in particular with its own Crown Dependencies and overseas territories to ensure that they can meet or exceed the agreed international standards.

2.50 Along with other members of the G20, the UK is ready to take action against jurisdictions that do not meet these international standards. CDC, which has sought to avoid unco-operative jurisdictions in the past, will in future only commit capital to new funds and direct investments in jurisdictions substantially implementing the international tax standard. CDC will also continue to invest directly in the developing countries they are trying to help. CDC will review all existing investments in jurisdictions committed to, but not yet implementing, the international tax standard, following the next G20 Summit in September 2009.

2.51 In addition the Government is discussing with its international partners whether other initiatives, including country-by-country reporting of tax payments, could offer an effective and suitable means of advancing the tax transparency agenda.

Most tax gap estimates are flawed, academics claim

Oxford researchers highlight 'shortcomings' but civil society groups were forced to produce estimates in the absence of research by international institutions, say campaigners

Information regarding revenue losses in developing countries caused by tax evasion and avoidance is very limited, partly due to a lack of data and partly due to "methodological shortcomings of existing studies," according to new research.

Clemens Fuest and Nadine Riedel of the Oxford University Centre for Business Taxation prepared the report – entitled Tax evasion, tax avoidance and tax expenditures in developing countries: A review of the existing literature – for the UK's Department for International Development (DFID).

The report's publication came as the UK Treasury was reported to be preparing to voice support for country-by-country reporting. Christian Aid has been lobbying the big four accounting firms to use their influence at the International Accounting Standards Board to argue for the reform. The charity has estimated that tax revenue lost by developing countries due to "trade mispricing" by multinationals amounts to US $160bn a year.

Fuest and Riedel concluded that some of the existing estimates of revenue losses due to tax avoidance and evasion by firms – in particular, some studies on corporate profit shifting – "systematically overestimate the losses".

They added: "Other studies are based on assumptions which are so restrictive that the results are difficult to interpret. Overall, it is fair to conclude that most existing estimates of tax revenue losses in developing countries due to evasion and avoidance are not based on reliable methods and data.

The report recommended a number of possible directions for further research to "improve our understanding of tax avoidance and evasion and the implications of these activities for revenue mobilisation in developing countries".

The Tax Justice Network's research was among the papers reviewed in the Oxford report. Responding to the report, the TJN pointed out on its blog that "in the absence of any useful research emanating from the IMF, World Bank, and indeed academic bodies far better funded than we are, almost all of the literature under review here originates from civil society organisations".The TJN had been “forced” to produce estimates based on whatever datasets become available “in order to challenge those institutions which should be taking these issues seriously to produce estimates of their own,” it said.

The current issue of Tolley's Practical Tax newsletter (3 July) has more on this and other very recent developments including:

• Private residence relief claimants under fire – but HMRC guidance spells out how longstanding exemption written into tax law saves capital gains tax
• Finance Bill progress
• HMRC has 'serious problems' with online trust returns
• 'Vodcast' shatters accountant stereotype, claims ACCA
• New SAYE bonus rates offer 'almost no return'

Christian Aid doorsteps Taxation awards and posts interviews on YouTube

Several guests at last month's LexisNexis Taxation Awards found themselves featured on YouTube, answering questions put to them by Christian Aid campaigners as they arrived at the event. Christian Aid has lobbied the big four accountancy firms in its campaign for country-based tax reporting. The charity invited many of the guests arriving at London's Park Lane Hilton to answer questions about corporate "tax dodging" which, it claims, costs developing countries $160bn a year.

The charity declared that "while the accountancy industry celebrated its achievements in tax-bill-minimisation, we held our own awards ceremony outside". The "winners" included Barclays, which the charity described as "tax haven enthusiast of the year". Christian Aid posted two videos on YouTube, featuring its "alternative" tax awards and the filmed reaction of several guests to questions put to them outside the Hilton. While some respondents were clearly in the "no comment" camp, others appeared more sympathetic. One said: "I don't know where you get your figures from, but if that's correct it's not going to make anyone feel very good."

"The majority of people we spoke to were positive about our campaign," the charity said. In this week's issue of Tolley's Practical Tax newsletter Madeleine Brand, a chartered tax adviser and Christian Aid volunteer, calls on tax advisers to support the charity's Big Tax Return campaign.**

See related posts in the Christian Aid category of this blog. The current issue of Tolley's Practical Tax newsletter ( 5 June) has more on this and other very recent developments including:

• HMRC discusses regulation of tax agents and possible penalties for "poor behaviour"
• Finance Bill "aggravates" long and complex tax code, says Tax Faculty
• OECD watching havens "like a hawk"
• Tax authorities agree "new co-operation" plan
• Chartered Institute of Taxation launches green tax report

** TPT reported on 22 May, having invited each of the big four firms for their reaction to Christian Aid's campaign, that:

PricewaterhouseCoopers said in a statement that it had "led the profession" in promoting more transparency in tax and wider corporate reporting. "PwC has met with Christian Aid to discuss our shared interest in improving corporate reporting of tax information and indeed subsequently continued this dialogue in writing," said Barry Marshall, the firm's UK head of tax. "We have a common interest to continue to improve corporate reporting of tax information. However we do not believe that the introduction of the kind of country-based reporting proposed by this campaign would meet this ambition." PwC added that its total tax contribution (TTC) framework was "designed to improve communication and understanding of a company's tax position" and "gaining traction and support around the world". The firm would "continue to support its development, in conjunction with our corporate reporting colleagues, to continually improve business reporting generally". The firm's website promotes TTC in the light of increasing scrutiny of the amount of tax paid by large businesses which, it adds, "pay considerably more in tax than it might first appear". It suggests that "a business's tax contribution and its tax strategy should be looked at from the point of view of all the taxes it bears and collects" ...

A KPMG spokesperson told TPT: "We have received a large volume of mail from Christian Aid supporters and we are listening to what they have to say." Ernst & Young told TPT: "We are aware of the campaign but are not commenting further." Deloitte declined to comment.

HMRC service problems frustrate small practitioners

A third of smaller tax practices taking part in a recent survey noted a significant increase in time and costs as a result of HMRC service problems over the previous 12 months, according to a leading tax body. The ICAEW's Tax Faculty reported widespread concern among smaller tax practices that HMRC's efficiency programme had reduced the efficiency of services on the ground, resulting in "considerable wasted time and costs for taxpayers, agents and HMRC". This week's Tolley's Practical Tax newsletter has more on this and other developments, including:

• Expatriates – Amanda Sullivan reports on the many issues discussed at the April 2009 meeting of HMRC's Joint Forum on Expatriate Tax and NICs;
• Finance Bill is incomplete 'because of time constraints' – Treasury admits that time pressure resulted in omission of 'points of detail' in foreign profits reforms;
• Venture capital scheme changes required to avoid 'suspension';
• Timms asks governments to 'heed Isle of Man's example';
• Christian Aid lobbies big four firms on country-by-country reporting.

A good day for civil society and peaceful protest

The Put People First coalition that organised today's march in London ahead of the G20 summit has a long and impressive list of supporters (see below). The PPF is an alliance of more than 150 unions and environment, charity, faith and development groups, formed "in response to calls for a fair, sustainable route out of recession".

The coalition calls on the UK government to "create a 'Green New Deal' to create jobs in the environmental sector; invest in essential services including social housing; provide emergency funding to countries that need it to protect jobs and provide social protection; tackle tax havens – especially those linked to the UK; insist on democratic reform of the World Bank and IMF; make all financial institutions and multinational corporations transparent and accountable; ensure that poorer states are allowed to take responsibility for managing their own economies rather than having liberalisation measures forced upon them; introduce robust regulatory requirements and financial incentives at national level and push for them at international level to stop climate chaos; and commit to substantial new resource transfer from North to South to support low carbon development".

Here is the list from the PPF website:

Media partner: New Internationalist Supporter organisations: ACORD ActionAid AJCC ADD ACTSA Advocacy International Akina Mama Wa Africa AMREF UK Article 12 in Scotland ASLEF ATL Avaaz BECTU BIF BOND BOVA BRAC UK Bretton Woods Project Cafédirect CAFOD CCC CBM CDD CAWN CSP Change is Coming Childhope Christian Aid CEL CND COIN Compass Concern Worldwide (UK) Co-operative News Connect CWU Dalit Solidarity Network UK Defend Council ousing DoSomethingAboutIt Down2Earth EAP ECCR Ekklesia Engineers Against Poverty EQUITY Everychild Fairtrade Foundation Fatima Women's Network FBU Find Your Feet Footprint Friends Friends of the Earth GardenAfrica GCAP GMB Green New Deal Group Greenpeace Health Unlimited HelpAge International Hives Save Lives Interact Worldwide InterHealth International Service John MacMurray Fellowship Jubilee Debt Campaign Justice for Colombia LabourStart Lattitude Learning for Life Merlin Micah Challenge UK MRDF Musicians Union Muslim Council of Britain NAPO NASUWT NCVO NEF No weat NPJG Novas Scarman NPC NSC NUJ NUS NUT One One World Action 100 Months Operation Noah Oxfam Pants to Poverty PCS People and Planet Performers Without Borders PSG Plan UK Priced Out Progressio Project Hope UK Prospect Red Pepper RHM RMT Salvation Army Save the Children SCIAF SEAD Share the World's Resources Shelter Sightsavers Skillshare International SOAS Activists' Forum SoR SPEAK Stamp Out Poverty STOP AIDS Campaign Stop Climate Chaos Sudanese Women for Peace Synergy Centre Tax Justice Network Tax Research LLP Teach a Man to Fish Tearfund The Bihar Development oundation UK The Other Tax Payers' Alliance The Rights Practice Thirty-eight degrees TFSR Tourism Concern Trade Justice Movement TUC Trading Visions Traidcraft Transnational Institute TSSA UCATT UCU UK Aid Network UNISON UNITE United Nations Association UPSU USDAW VSO War on Want WCIA WILPF Womankind Worldwide WOW World Development Movement World Vision WWF