Here at Oxfam we work hard to beat inequality.
We do this because inequality perpetuates poverty, erodes trust, fuels crime, makes us unhappy, negates economic growth, and robs opportunities from people who are struggling to get by. It even cuts short people’s lives.
How can tax fight poverty
It might surprise you to know, but one of the most important things we can do to build an inclusive world of abundance is to transform our international tax system.
The tax system is how we share resources to get the big-ticket items that we all benefit from: roads, schools, police, teachers, public libraries, nurses, clinics, rubbish collection, safe water, and electricity. These are the public services that everyone makes use of, but that people who are poor rely on. Evidence tells us that the tax system can be a powerful tool to end inequality and poverty.
Making the rules fair for all
Our international tax rules say what multinational corporations can do and what governments can tax. They are old, dating back to WWII. Multinational corporations have found ways to game the rules to drain profits away from countries where they should contribute taxes, to countries where they contribute next to nothing.
Multinational corporations have also used countries’ need for investment as leverage to drive down corporate tax rates to the lowest they have ever been. This bad behaviour robs opportunities from people across the world.
Preparing for a more digital future
Meanwhile, our economies are changing. More and more of our lives are online: we buy and sell things and information; and we create value for corporations through sharing our own information. This digital economy makes it hard for people in government to get multinational corporations – including digital corporations – to make their fair contribution where they actually operate.
In response to this, representatives from 129 governments around the world – including New Zealand – are coming together to talk about how to fundamentally change the rules to make the international tax system fit for the modern world.
If governments get this right, we could see the end of shadowy corporate tax havens and the damaging race to the bottom on corporate tax. It could mark the beginning of a new tax era with fair taxes; where countries get what they need to nurture their people and the planet.
Four things have to happen.
One. Let all countries take part in decisions about international tax rules
When decisions are being made that impact on us, it is only right that we have our say.
Yet, for decades the Organisation for Economic Cooperation and Development (OECD) – a small club of only 36 wealthy countries, including New Zealand – has led decision-making about international tax rules. This has meant that countries that benefit from the rules have made the rules, leaving out countries that are poor.
This isn’t right, especially because countries that are poor rely most heavily on taxes from multinational corporations to provide services like health and education. They should be at the decision-making table.
The OECD has recently opened up to allow other countries to take part in decisions about international tax rules. But even now, only countries that have signed on to implement the OECD’s minimum tax standards are allowed to take part in decision-making. These 120 countries belong to what is called the ‘Inclusive Framework’. This means that many countries that are poor still don’t get a say in decisions about rules that impact on them.
Two. Simple rules that work for all
At the moment, the international tax system is incredibly complex. Even for New Zealand. When our people in parliament passed a law last year to help hold multinational corporations to account, the Specialist Tax Advisor said the legislation was “the most complex and technically challenging tax Bill that I have seen in the thirty years during which I have been a full-time tax professional”. *When an experienced tax accountant says something like this, you know it is bad.
Countries that are poor don’t have the resources to invest in sophisticated tax systems. This makes it more difficult for them to catch multinational corporations when they are gaming the rules and shirking from contributing their fair share. We need international tax rules that make the system simpler, not more complex. This will help us here in New Zealand, and also our neighbours across the Pacific region and beyond.
Three. Make rules that mean tax is paid where profits are made
For far too long, multinational corporations have been able to game the international tax rules to shift profits away from where they are made. They avoid contributing their fair share to the well-being of people in the countries where they make profits. It is time to make sure that the rules ensure all multinational corporations contribute their fair share, based on the actual profits they make in each country where they operate.
Four. Set a global minimum tax rate for multinational corporations
To beat inequality, we need a global minimum tax rate for multinational corporations – so they can’t get away with shirking their fair share. One way to stop multinational corporations driving corporate tax rates down and avoiding taxes across the world is for governments to agree on an ambitious minimum tax that all multinational corporations have to pay. This tax rate shouldn’t be too low – it needs to be set at a level that makes sure multinational corporations contribute their fair share in every country they operate. For this reason, the minimum tax rate also needs to be calculated at a country level – not just in the country where the multinational corporation has its headquarters.
*Turner, Therese, March 2018, Taxation (Neutralising Base Erosion and Profit Shifting) Bill, Report of the Specialist Tax Advisor to the Finance and Expenditure Select Committee, Turner & Associates: Wellington, Accessed on 2 September 2018 at: https://www.parliament.nz/resource/en-NZ/52SCFE_ADV_75623_942/041d34fc190035632c50dc2a00018cbee08b4fc7