AS I SEE THINGS: Tax avoidance: good – and bad – news
Only recently, it has been revealed that the Group of Twenty Finance Ministers and Central Bank Governors (G20) has thrown its full support behind an Organization for Economic Cooperation and Development (OECD) arrangement to concentrate efforts on tax avoidance by multinational corporations.
The OECD plan is multidimensional and includes, for example, an obligation that “multinationals with extensive warehouse operations in an overseas country, such as Amazon, to pay local tax on any profits arising from sales in that country”.
Also included in the plan are “forcing multinationals to disclose to every tax authority a country-by-country breakdown of profits, sales, tax and other measures of economic activity such as headcount” as well as “a crackdown on tax regimes found to have too soft an approach to multinationals deploying overseas finance subsidiaries through establishing a new international benchmark for appropriate taxation of controlled foreign companies”.
It is instructive to note that the G20 incorporates countries from various regions of the world such as Africa (South Africa), Asia (Japan), Eurasia (Russia), Europe (Italy), Middle East (Saudi Arabia), North America (United States), Oceania (Australia), and South America (Brazil).
According to available data from the International Monetary Fund, the G20 countries collectively account for over 80 per cent of all incomes produced globally and economic growth as well as world trade.
As I reflect on the recent financial performances of some multinationals even here in the Caribbean and on economic conditions in many ailing regional and other external economies, two interesting sayings immediately come to mind: First, “Bad news isn’t wine. It doesn’t improve with age.” (Colin Powell).
Second, “In the business world, bad news is usually good news – for somebody else.” (James Surowiecki).
Given the financial and economic conditions that have been in existence worldwide since the 2007/2008 global recession and the continuing uncertainties surrounding the performance and growth prospects for the international economy, it is extremely difficult to imagine a scenario in which there could be any meaningful improvements in news for international businesses in the foreseeable future – particularly those businesses that have grown and expanded by exploiting tax loopholes in many country around the globe.
On the other side and in the same vein as Surowiecki, the bad news coming from the OECD and G20 for international businesses is clearly good news for several countries – rich as well as poor – that are growing more and more desperate to realize higher current revenues to allow them to tackle their huge and ever-increasing fiscal deficits and public debts.
And it is clearly for this precise reason that no one should anticipate any easing of momentum from the OECD and G2O as they continue in their efforts to clamp down on tax avoidance globally.
How this latest initiative with such widespread support among the most resourceful countries in the world will eventually impact international business is anyone’s guess. But, one thing is for sure: If the move is properly implemented, several countries around the world are likely to benefit tremendously from higher tax intakes from multinational corporations operating within their domestic economic spaces.
And increased tax revenues can only redound to the good of the countries and their respective citizens!
• Brian M. Francis, PhD, is a lecturer in the Department of Economics at the University of the West Indies, Cave Hill Campus.