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G20 Finance Ministers Act on Tax Avoidance
by Kim Gleeson
Universal Rights Network
20 Sept 2014
G20 Finance Ministers are meeting in Cairns, Australia this weekend, to yet again "discuss" tax avoidance by corporations, that is lost revenues to invest in public services such as health and education that benefit populations.
No specific actions on questions surrounding the dubious accounting mechanisms utilized by high net worth individuals to avoid their full tax requirements seem tabled for discussion.
The coded language and business perspectives represented in the article below: "Is chasing lower taxes really a strategy for value creation?", I believe highlight the depths of the problems.
".. opportunities for multinationals to undertake globally based arbitrage to reduce overall scrutiny of operations and their tax exposure".. "pursue opaque transfer pricing arrangements between one jurisdiction or declare profits via subsidiaries that are no more than corporate shells".. "make internal and artificial royalty payments to avoid national rules and cut their tax exposure".. "as a result of considered accounting many multinationals pay corporate taxes rates as low as 5 per cent".. "company management is pursuing its fiduciary duty in minimizing their company’s tax burden!".
It is the responsibility of Governments, lawmakers and the judiciary to ensure that such tax avoidance practices do not occur.
They have been derelict in their duties to their peoples.
What is the culture of Governance that allows these practices to persist? Whose interests are they serving? Is "Integrity" a selective value for the most powerful corporate stakeholder group to define its meaning?
The Tax Justice Network, amongst many others has repeatedly cited sums amounting to trillions of dollars in lost tax revenues to invest in public services for the people.
Why are finance ministers still merely "talking" about it, more than 5 years after the GFC? After decades of such practices. Are they and their colleagues in Government more concerned with their future careers in the corporate sector. Is their insipid response the result of the unending corporate lobbying of Government, for the preferred regulatory environment? This of course follows the sub-prime financial regulatory disaster that precipitated the GFC, and follows a string of billion dollar fines for major banking groups, not to mention the Libor interest rate scandal.
G20 Finance Ministers, are Ministers of Government, who are elected by the People, to act in the People"s interests. That is the majority of the people, not elite economic interests.
It is long past time for them to fulfill their responsibilities to their electors. They must act immediately to protect the public interests of their peoples, now not some time in the future!
These ongoing tax avoidance practices are an indictment on their failures, and reflect a most disturbing corporate business culture.
Kim Gleeson, Director. Universal Rights Network
September 12, 2014
Is chasing lower taxes really a strategy for value creation? (Top 1,000 Funds: Investment Strategies for the World"s Largest Institutional Investors)
Investors are just beginning to understand global tax issues and the risks associated with aggressive tax planning by the companies in their portfolios, Fiona Reynolds, managing director of PRI (Principles for Responsible Investing) says there are a number of common-sense measures that companies should begin to put in place.
The 2014 G20 Summit to be held in Australia in November will consider a range of proposals around modernization and reform of international tax practices, as part of the wider agenda to lessen volatility risks and build resilience in global financial markets. In the eyes of many, concrete action and reforms can’t come soon enough.
Tim Horton’s Burger King is the latest in a series of deals this year that have raised questions over corporate tax responsibility. The tax affairs of many of the world’s largest and best-known companies are coming under public scrutiny as never before – and this scrutiny is raising governance challenges for investors.
The tactics are familiar. Multinational companies shift domiciles around the world to take advantage of lower tax jurisdictions and less regulation. They pursue opaque transfer pricing arrangements between one jurisdiction or declare profits via subsidiaries that are no more than corporate shells.
They make internal and artificial royalty payments to avoid national rules and cut their tax exposure.
We must bear in mind that although these tactics may be decried, they are generally legal. Some national governments compete to make their jurisdictions as attractive as possible to international business – and corporate tax policy is a crucial battleground. This offers numerous opportunities for multinationals to undertake globally based arbitrage to reduce overall scrutiny of operations and their tax exposure.
The OECD defines these various practices under the umbrella label of ‘Base Erosion and Profit Shifting’ (BEPS) and points out that as a result of considered accounting many multinationals pay corporate taxes rates as low as 5 per cent, a sharp contrast to the rates above 30 per cent borne by smaller businesses. Unlike large corporates, SMEs are unable to optimise their tax position across multiple jurisdictions and subsidiaries.
From the shareholder’s point of view, in theory every dollar paid in tax is one dollar less available to the business, or to pay dividends. Ostensibly, company management is pursuing its fiduciary duty in minimizing – within the law – their company’s tax burden. A lower tax bill again in theory is supposed to result in higher profitability, more reinvestment or better dividends.
But as attractive as these arguments may be, a growing number of investors are becoming concerned about the risks posed by an overly dogged pursuit of tax efficiency.
Is chasing lower taxes really a strategy for long term sustainable value creation?
Should a board and senior management teams be always looking to short term tax breaks or concentrating on decade long directions that more closely align with institutional investor expectations?
Another nagging question remains. If these various arrangements are entirely legitimate, ethical and add value, why is there such dogged resistance to the OECD Action Plan with its implicit proposals for greater information sharing, transparency and disclosure by international corporations?
At the UN-supported Principles of Responsible Investment (PRI), we are analyzing the results of our new comprehensive reporting exercise.
With 814 investor signatories reporting in 2014, these results are a global barometer for what investors are doing to create sustainable capital markets. These investors, who collectively manage more than $40 trillion of assets, have committed to consider environmental, social and governance criteria in their investment decisions, and to report on how they do so.
This first-of-its-kind snapshot shows that tax is high on many of our signatories’ agendas, with no fewer than 100 of them including a reference to taxation in their responses.
Investors see the risks in aggressive tax planning by the companies in their portfolios. The first is that they risk damaging their brands, or losing their license to operate – and this risk is especially acute for public-facing companies in the fast-moving consumer goods markets.
Tax avoidance has risen to the top of the list of public concerns about corporate behavior, according to a well-regarded survey of the British public carried out last year by the Institute of Business Ethics. It’s hardly surprising with pensions and other social services around the world being cut, that tax payers are outraged that they have to pay their fair share of tax revenue, while some multi-nationals are allowed to avoid paying theirs. In the US there is a grassroots campaign underway, which is targeting some US corporations who are engaged in tax minimization as being “anti-American”
To illustrate the severity of these risks, Starbucks, for example, reported last October its first drop in UK sales after 16 years of strong growth, during a period when it faced a consumer boycott and parliamentary criticism over its tax affairs.
This highlights an additional exposure – to regulatory intervention, either collectively or individually. No company wants to find itself the subject of intense scrutiny by the tax authorities, with the attendant distraction to corporate management. Google found itself raided by French tax authorities, which have subsequently served the company with a tax bill which could reportedly hit €1 billion.
Collective action also seems increasingly likely. In June, the European Union announced a probe into whether Ireland, the Netherlands and Luxembourg were offering improper tax breaks to Apple, Starbucks, and the financial arm of the Italian carmaker Fiat, respectively.
The OECD is in the middle of a two-year programme, set up at the instigation of the G20, to help governments amend national tax laws to ensure they can collect the taxes due from global corporations.
Large investors are also mindful of the fact that there is also a wider social good served by companies paying fair levels of taxation – and from which they stand to benefit as global investors. Taxation funds government services which all companies ultimately rely on, including education, infrastructure, scientific research, healthcare provision and protection of intellectual property.
In emerging markets, healthy government tax receipts can be vital in creating successful economies with consumers wealthy enough to afford the products and services supplied by multinationals.
So what stand should investors take? These issues are complex and it can be difficult to differentiate between legitimate tax planning and aggressive practices.
Many investors are just beginning the process of understanding global tax issues, and engagement between companies and investors on the subject is at an early stage. But there are a number of common-sense measures that companies should begin to put in place.
Improving transparency and disclosure has a strong foundation in governance and gives institutional investors an opportunity to make their own judgments.
The OECD proposals are a step in this direction.
Ultimately, sustainable, well-run businesses should pay a fair level of tax, and avoid the reputational, legal and financial risks posed by overly aggressive tax planning. Doing so is in their interests, the interests of their shareholders and the interests of the long-term health of the global economy. (See: Institutional (In)Competence - 21st Century Politics)
23 June 2014
World Public Services Day - Tax justice enables public spending for the common good.
From the south to the north, Public Services International members work together across borders towards ending tax havens, tax avoidance and corruption, and to bring in progressive tax systems that are properly resourced and enforced. Tax justice enables public spending for the common good, and provides the means for economic self-sufficiency for municipal, regional and national governments.
General Secretary Rosa Pavanelli says: “Tax justice is about social justice and fighting inequality. Tax justice is about redistributing wealth by funding the vital public services such as health and education that help end poverty and inequality. Reforming national, regional and international tax systems and removing counter-productive tax incentives will lead to substantially increased budgets for countries to finance the post-2015 agenda and pay for improved public services including education, healthcare, clean water and sanitation, energy, housing, transportation, and development initiatives.”
“Public Services International urges all of our affiliates to call on their respective governments to ensure that corporations pay their fair share of tax on their economic activity that takes place within national and regional jurisdictions. Whether companies are extracting oil, gas or minerals, setting up factories, or selling goods or services, people are deprived of their basic needs and human rights if we don’t ensure that corporations pay their fair share of taxes. This also means addressing race-to-the-bottom tax incentives and tax competition policies on a regional basis.
Pavanelli emphasises that, “ The best way to ensure that our governments can set the agenda for improving public services and sustainable development is to mobilize domestic resources through a strong progressive tax base.”
* Below is a link to a May 2014 report by Public Services International and the European Federation of Public Sector Unions - Why We Need Public Spending:
* A Tax Justice and Human Rights Symposium was held by the Faculty of Law, at McGill University, in Montreal, Canada in June 2014 - featuring presentations by tax justice advocates from around the world, academic researchers and representatives from international NGOs, view the speakers videos via the link below.

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Few perpetrators of mass violations face justice
by Pablo de Greiff
UN Special Rapporteur on transitional justice
12 September 2014
UN Special Rapporteur on transitional justice Pablo de Greiff on Friday warned that “despite clear international obligations, only a fraction of perpetrators of massive violations are ever investigated and prosecuted”. He stressed that it is crucial for States to adopt effective prosecutorial strategies to bring to justice the perpetrators of such atrocities and to prevent a recurrence of violence.
In a report presented to the Human Rights Council, the expert asserted that by strategically sequencing criminal prosecutions, States can maximize accountability in the aftermath of conflicts or during the transition away from authoritarian regimes.
“The aim of such strategies should be to dismantle the structures that enabled the atrocities in the first place,” de Greiff said. “Strategic prosecutions can contribute to the prevention of new violations.”
“Many countries in transition have been, and remain, greatly tempted to adopt amnesties, including blanket amnesties for even the worst violations. However, amnesties risk entrenching a culture of impunity and contribute to creating vicious cycles of violence,” he added.
The Special Rapporteur stressed the importance of victims’ participation in the design of prosecution strategies and in their implementation. “Participation empowers victims and catalyses demands for justice,” he said.
De Greiff emphasized that criminal prosecutions must not be one-sided or amount to victors’ justice as this would delegitimize transitional justice efforts. He added that the independence of prosecutors is a key safeguard in preventing criminal justice from becoming an instrument of the powerful.
“States must not take measures amounting to reprisals against prosecutors for their impartial efforts to bring perpetrators of mass violations to justice,” he stressed.
De Greiff also expressed concern about recent regression in the application of universal jurisdiction.
“I call on States with universal jurisdiction not to backtrack on their accomplishments and on others to adopt relevant legislation expeditiously,” he said.
* For the full report, see link below.

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