G20 leaves developing world behind in tax evasion fight

G20 Saint Petersburg.jpg

Developing countries will not have access to a new system of automatic exchange of tax information agreed in St Petersburg by the world leaders over the weekend due to their lack of administrative efficiency, a decision that was not welcomed by many development experts.

After two days of tense meetings, which focused largely on the Syrian crisis, world leaders agreed that the automatic exchange of fiscal information must become an international standard.

The 19 member states of the international organisation and the EU expect the start of automatic exchange of fiscal information to be operational at the end of 2015, according to the summit's final declaration.

The G20 also accepted the Organisation for Economic Co-operation and Development’s proposal against the manipulation of transfer prices of multinational enterprises, a technique that consists in changing the selling or buying prices of the same enterprise in order to transfer the benefits to a tax haven.

“Unfortunately this decision doesn’t concern developing countries, who are the first victims of tax evasion,” says Mathilde de Dupré from CCFD-Terre Solidaire, a development campaign group.

Global Financial Integrity, another NGO, estimates that developing countries lose around $100 billion a year due to the manipulation of transfer prices of enterprises. “They lose three times more money that they gain with development aid”, wrote Melanie Ward form ActionAid in June 2013

Sebastien Fourny from Oxfam France adds that the problems is also in the developing countries’ capacity to mobilise resources and make financial benefit in order to finance themselves”. A conclusion shared by the G20 countries, who committed to make the automatic exchange system available to all countries and to provide assistance to weaker economies.

A working group, composed of international organisations (UN, OECD, etc.) will identify the obstacle faced by developing countries and present a report at the next G20 summit in November in Australia.

Guillaume Grosse fron ONE France says that the developing countries’s tax administrations will be assisted and have access to the information. However, Fourny from Oxfam highlights that so far these countries don’t have efficient tax administrations. He says that there must be financial aid for the tax system in these states.

Many experts share the view that in the beginning, access to the automatic exchange of information should be given to those countries, without demanding reciprocity, in order to include those countries in the process of the fight against tax evasion.

Background

Tax evasion costs billions every year. According to the European Commission, 1000 billion € are lost yearly. Developing countries lose 100 billions € each year. To stop his world phenomenon, the automatic exchange of data between tax administration will allow each country to be informed if  one of their citizens opens an account abroad, makes a transfer, creates a company, etc.

Further Reading

International organisations

  • Press release of the G20

NGOs

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