Civil society groups such as the Tax Justice Network have long been campaigning for an international accounting standard for country-by-country reporting to provide a global picture of the financial activities of companies, where they are making profits and where they pay tax.
This standard, which has reached the desk of the OECD and has the support of the UK government, would assist revenue authorities and civil society in holding companies to account–particularly in relation to complex transfer-pricing arrangements.
The inclusion of such a standard in the OECD guidelines for multinational companies would firmly cement transparency of tax payment as a pillar of corporate responsibility.
Civil society has a role to play in holding governments to account for how they raise and spend revenue. To invest in the social contract, we need to see the benefits and know that everyone is paying their fair share. A growing movement of local organisations in developing countries understands their tax systems and is monitoring budgets and expenditure.
In West Africa for example, civil society groups recently met to discuss the nature of their tax systems under the banner of “No Representation without Taxation”, in recognition of the importance of tax in the democratic process. The prevailing theme at this conference was the need for transparency at national and international levels.
Governments, for their part, must be much more transparent about how they raise revenue and where they spend it, so that their decisions are open to scrutiny. This is particularly important when it comes to decisions about the generous tax incentives given to companies in an effort to attract investment. In reality, many of these incentives do little for the country’s economy and are open to abuse.
Transparency is particularly important for companies extracting oil, gold and other minerals. This is a priority area for the international network, Publish What You Pay. For example, poorly negotiated and secretive mining stability contracts left African governments unable to benefit from the commodity price boom in 2008 and restricted the ability of governments to change domestic tax legislation.
Multilateral organisations and donors have a role to play in helping developing countries raise revenues. Sharing of expertise between revenue authorities is essential, while the use of aid to build more efficient, transparent and stable tax regimes would be a long-term strategic investment.
Governments also need access to information on individuals and companies holding assets in secretive tax havens so they can target those unfairly dodging tax. Significant progress has been made, but civil society organisations are demanding a swift expansion of agreements to include developing countries in a truly multilateral agreement.
A commitment to move towards automatic exchange of relevant information would ensure that information is delivered effectively, when it is needed, rather than requiring tax authorities to jump through extensive bureaucratic loopholes.
Raising revenue in the developing world is not going to be easy, but, in the long term, it would enable countries to chart their own course for development. For it is only when governments are dependent on the economic activity of their own citizens, individual and corporate, that they will truly act in their interests. This is the social contract. This is the challenge for everyone to play their part.
Lambrechts, K. (eds.) (2009), Breaking the curse: How transparent taxation and fair taxes can turn Africa’s mineral wealth into development, Third World Network Africa, Tax Justice Network Africa, ActionAid International, Christian Aid.