Progress on Transfer Pricing in Africa, Netherlands

Today we would like to highlight two recent blogs from two of Eurodad members, which discuss some positive developments in the tax transparency arena.

Firstly, following Action Aid’s recent report on SABMiller and its abusive transfer pricing practices in developing countries, several tax authorities in Africa are conducting further investigations on the company’s operations.

“African tax authorities have not only acknowledged the impact of ActionAid’s recent report highlighting tax avoidance by the global brewing company SABMiller, but also committed to doing something new in response to it. Meeting last week to discuss our report under the auspices of the African Tax Administration Forum (ATAF), several of the countries in which SABMiller operates agreed to work together to step up efforts to combat tax dodging by multinationals.”

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Approaches and Impacts – IFIs Tax Policy in Developing Countries

Co-Authored by Maria José Romero and Rachel Sharpe

A new report by Eurodad and Action Aid

Tax policy has been at the heart of policy advice from the International Financial Institutions (IFIs) to developing countries for the last twenty years. Tax reforms became an increasingly important part of the structural adjustment programmes promoted by the World Bank and the IMF in developing countries from the late 1980’s.

This paper reviews existing literature on the IFIs approach to tax policy reform during the last decade. NGO and academic research suggest that the IFIs have used technical assistance and policy advice to encourage developing countries to reform their tax systems according to a consistent template of interlinked policy prescriptions.

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Calling for transparency: making country by country financial reporting mandatory in the EU

The European Commission has recently opened a consultation process until 23 August 2010 calling for views to modify a regulation that sets out minimum transparency requirements for listed companies.

The Transparency Directive was adopted in 2004 with the aim of improving the information available to investors on companies’ performances to help them make investment decisions. Now, the so-called TOD Directive is under revision.

Where the directive currently falls down

As it currently stands, while the Directive covers a large range of firms, namely, those whose securities are admitted to trading on a regulated market, it only offers EU Member States the possibility of adopting country by country reporting for the extractive industries and only on a voluntary basis. The modernisation of the Transparency Directive should uniformly require companies that fall under the scope of the Directive to report their financial accounts in every country in which they operate.

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Reaching the millennium goals: The European Parliament calls on EU member states to make progress on aid and capital flight

On 15^th June the European Parliament passed a resolution on progress towards the achievement of the Millennium Development Goals (MDGs): mid-term review in preparation for the UN high-level meeting in September 2010. This resolution sets out a number of recommendations for EU Member States ahead of the summit. It acknowledges that “all eight MDGs are currently off-target” and asks member states to adopt a leading, ambitious and united position to meet the MDGs before the 2015 deadline.

Overall, this resolution is more ambitious than the position adopted by EU Member States in the June Council Conclusions on development and follows the path of other parliamentary resolutions such as the Guerrero and Domenici reports. However, the report on MDGs as adopted by the Development Committee was watered down in the vote held in the plenary session of 15^th June. The proposals of an interest-free moratorium and a tax on currency and derivatives transactions to fund the MDGs were rejected by the plenary.

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European Development ministers put tax high on the development agenda, but concrete measures are still needed

On Monday 14^th, the European Council adopted conclusions on tax and development, giving its support to last April’s Commission Communication “Cooperating with Developing Countries on Promoting Good Governance in Tax Matters”. Eurodad welcomes these conclusions, which put capital flight, including tax avoidance and tax evasion high on the EU and Member States’ agenda. The Council acknowledges that tax avoidance and tax evasion are “a major obstacle to domestic resource mobilization” for developing countries and that capital flight “requires efforts from both developed and developing countries”. The Council conclusions include the following:

Support for a Country by Country (CBC) reporting requirement for Multi National Companies (MNCs):

We regret that the Council has not been more assertive and explicit in this point and limits itself to exploring CBC reporting as a standard for MNCs. Yet, it is very positive that the Council calls on EU Member States to “support ongoing consultation by the IASB on a country-by-country reporting requirement in IFRS 6 for the extractive sector” and beyond. The fact that the Council encourages IASB to go beyond the extractive sector is a significant step forwards and will be particularly relevant during the forthcoming IFRS 8 review, to be conducted by the European Commission in 2011.

Promote an international framework for exchanging information on tax matters:

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