Commonwealth finance ministers pledged to create a new platform giving small, developing countries an equal footing in global negotiations to combat tax avoidance and evasion.
Commonwealth finance ministers pledged to create a new platform giving small, developing countries an equal footing in global negotiations to combat tax avoidance and evasion.
Ministers agreed to the proposal at their annual meeting in Lima on 7 October. Chaired by the Finance Minister of South Africa, Nhlanhla Nene, discussions focused on strengthening tax co-operation to protect countries against harmful corporate tax practices. According to the International Monetary Fund (IMF), this amounts to over USD 200 billion in lost revenue every year.
“Those who can beat this system will do so, we need uniformity in tax standards.” said Arun Jaitley, India’s Finance Minister.
Ministers commended efforts made The Organisation for Economic Co-operation and Development (OECD) spearheaded by the G20 to prevent this practice but highlighted issues arising from the lack of participation by small and vulnerable countries in decision-making processes.
This is particularly timely as recent discussions at the United Nation’s Third Financing for Development Conference in Addis Ababa emphasised the crucial need to strengthen tax systems. This will enable developing countries to move away from aid dependency and help finance the newly agreed Sustainable Development Goals.
Delivering the opening remarks Commonwealth Secretary-General Kamalesh Sharma noted that tax rules had struggled to keep pace with globalisation, which has seen the growth of cross-border trade and the digital economy, allowing companies and individuals to move money around and get out of paying tax.
Samantha Attridge, the Commonwealth Secretariat’s Head of Finance and Development Policy, noted that the Commonwealth is in a unique position because of its diversity to start a more inclusive political discussion. She supported the proposal of setting up a new platform on tax co-operation.
Ms Attridge said: “Collectively we’ve committed to scaling up tax co-operation, but the scope and approach of our work must be universal and take into account the interests of all countries. If we organise ourselves systematically we can present a stronger voice.”
Ministers highlighted the negative impact of the EU’s blacklisting of 14 Commonwealth tax haven jurisdictions and were concerned this assessment was made outside of the global forum, the recognised multilateral body for this issue. They noted that an inclusive platform on tax co-operation would be an ideal opportunity to raise members’ concerns about the issue.
Pascal St-Amans, Head of Tax at the OECD discussed the important role tax could play in funding sustainable development. “As tax people, we are extremely happy to see tax have a greater role in the international agenda”, he said.
Mr St-Amans highlighted the valuable contribution of the Commonwealth in ensuring that tax policy decisions were made on a “level playing field” through a global forum. He updated ministers on initiatives to stop companies shifting their profits to low or no tax jurisdictions, the Base Erosion and Profit Shifting (BEPs) project.
“We are not pretending BEPs is the only solution. We now face a big challenge of implementation. We need to make sure all countries can grow on BEPs. The purpose of the project is to realign the location and taxation of the profits”, added Mr St-Amans.
Commenting on the proposal to set up a working group on tax co-operation, Christopher Sinckler, the Finance Minister of Barbados raised the issue of tax havens.
He said: “We want to lend support to have a tax co-operation working group, but we have the perplexing situation of the OECD global forum only to have members of the global forum standard-setting group go behind the curtain to breach their own policies. Member countries at the forefront of the OECD have provinces passing laws that declare these jurisdictions are non-compliant.”
In addition, ministers discussed untapped sources of infrastructure finance, such as pension funds, sovereign wealth funds and the New Development Bank. They considered ways to ease constraints to access these funds.
They also pledged to strengthen the Commonwealth G20 relationship, now in its sixth year, and explored opportunities arising from China taking G20 presidency in 2016.
Read CFMM Chair's Summary by Honourable Nhlanhla Nene, Minister of Finance, South Africa