Taking taxation seriously

Tax evasion and a new mind-set at the G8?

The G8 summit at Lough Erne has been portrayed less as an ‘objectives’ summit and more as a ‘turning point’ summit. Which is to say that the communiqué and discourse to emerge from the meetings does not set out concrete commitments as much as declarations of intent. The intentions declared at the G8 are supposed to feed into subsequent elite summitry and regulation-setting housed within the G20, the OECD… and then likely back to the G8 again, next time in Germany.

The public presentation of this year’s G8 is actually quite intriguing. For the campaign organisations that chose to engage with the cloistered politics of heads of state, the usual reaction to a summit’s outcomes is to make a judgement on the achievements attained and then maintain a certain amount of campaign energy focussed on pressuring politicians to keep to their commitments. But, post-G8, there are few specific targets to publicise and push. Or, at least, the commitments are to set up new regulatory infrastructures, voluntary codes, and forms of information sharing. These are not the kind of campaign-friendly commitments that have previously been the focus of broader public assessment such as levels of debt reduction, levels of aid, carbon emissions reductions and so on. The tenor of the declarations is what should be done and what should be done is to start processes, not achieve specific outcomes.

On the other hand, one can read the G8 communiqué and see a quite radical kernel to it. If one wished, one could argue that the G8 was radical in its discussion of ‘land grabbing’ and international taxation. These are agendas that open up more ‘political economy’ points of view – issues that seem distant from discourses of aid and debt relief which have tended to be presented as essentially a question of generosity or charity. And because the communiqué and declarations of G8 politicians were normative – ‘we should do something’ – and not specific and objective-based – ‘we will commit to this target’ – it is tempting for a broad range of interests and agencies to agree in minimal terms. Surely, yes, we should be taking transparency in taxation and tax evasion seriously. What really matters is what ‘taking tax seriously’ means…

Enter the OECD

For the G8, taking tax seriously involves the OECD. Transparent, predictable, and harmonised international taxation systems have been at the heart of OECD work for decades. And, currently, the OECD has taken up a key role in the tax reform agenda that has emanated from the G8. The OECD is not known for its economic unorthodoxy, its desire to generate left-progressive development models, or to care a great deal about its interactions with popular or mass voices. So, we should ask what it means to have an ostensibly or potentially ‘radical’ normative statement on taxation from the G8 being operationalised centrally through the OECD. This requires us to look at taxation within a broader political economy context.

The OECD’s concern with all development issues is with universalising liberal market management. The OECD has pushed for reforms to tax havens before; it has also worked to roll out the criminalisation of bribe payments which was itself a response to some states’ fiscal structures: in some countries, bribes were tax deductible! It has tried to create harmonised regulations for foreign direct investment which led to a campaign to scrap the Multilateral Agreement on Investment. In regards to tax on the profits of transnational companies, the OECD has worked for some years to reduce taxation through harmonisation, to avoid so-called double taxation in host and headquarters/domicile country. This neoliberal concern with double taxation has underpinned the ability of companies to locate their domicile status in low tax spaces whilst doing the vast majority of their profit-making in other (higher-tax) spaces. To all intents and purposes, this is double non-taxation. Coffee anyone?

My point here is simply to recognise that the OECD is focussed on creating universal basic laws for open economies. This is in its DNA and it is explicit in all of its programmes. Recently, the OECD and major capitalist economies have reacted to two recent changes: firstly the global economic crisis has both reduced tax bases for states that are already having to cut expenditures; and secondly popular regard towards the global ‘chronically rich’ has plummeted. It is entirely consistent with established OECD and G8 practices to address both a fiscal and legitimacy crisis by working towards a system of more transparent fiscal procedures that will have as their effect a clamping down on tax evasion and underpayment. It is simply another iteration of a core neoliberal policy issue: setting hard and fast minimal rules for competitive market economies and connecting this reform agenda to a extremely narrow rendition of social justice.

The Lough Erne Communiqué clearly fits within this neoliberal framework. It’s initiatives can be summarised as: coordination between states to ensure information sharing on TNCs’ profits, taxes, and movement of revenues between countries; action plans to cut out money laundering; and technical assistance to improve the collection of tax in poor countries. The most immediate and perhaps most publicised aspect of the G8 tax agenda is the endorsement of the OECD’s Base Erosion and Profit Shifting (BEPS) action plan. The BEPS plan is quite remarkable in making issues of international tax evasion seem like a coordination problem between states rather than something that transnationals purposefully do to maximise profits and keep moneys from weak and poor states.

The favourable reading of the G8 – that it marks a change in mind-set with potentially significant developmental impacts – is based in an ‘immanent’ evaluation: taking the aspirations on their own terms and hoping to push them towards more concrete reforms. The ‘political economy’ reading is considerably less favourable. It suggests that the G8 discourse fits with a well-established established faith in transnational corporations to work best when least regulated as long as a minimal and ‘fair’ regulatory apparatus is in place. The latter reading opens up a lot more for reflection and discussion. In what follows, I offer only one of various ways of opening up a discussion on tax and international capital.

International taxation and the political economy of development

The taxation of profit is not only a technical issue that relates to audit and fiscal policy; it is also deeply political. There are two key facets here. Firstly, taxation presupposes a state whose aspiration in taxing a company’s profits is at least in part to make a moderate rebalancing between the accumulation of private wealth and the enhancement of the public good. Secondly, taxation is a key device through which private companies are regulated. In other words, taxation is one amongst various ways in which the actions of a private company are constrained by public institutions.

Taking the first facet, what matters most is taxation levels. Parity and transparency in collection is a related but secondary issue that is generated by concerns with implementation. And, the fact is that the discussion of tax evasion is based in a context of low and lowering tax rates. Since the early 1980s, the tax rate of the major source of tax on companies, corporate tax, has fallen constantly and significantly across the world. Until very recently, financial transaction taxes have also been looked at very unfavourably within elite circles. In many specific instances, neoliberal tax frameworks are set for transnationals entering poor countries: concessional tax rates, future-proof low and fixed tax rates, and tax exemptions – none of which seem to trouble the G8 or the OECD. So, the context of the G8 announcements looks less like a change in attitudes, and more like the expression of a desire to make universal and transparent rules for a low-tax global economy. A low-tax global economy is by definition one in which the ‘commonwealth’ is depleted and capital mobility enhanced.

Looking at the second aspect – regulation – the G8 declarations seem like small change within a context of thirty years of deregulation. Explicitly, and with a considerable degree of success, the G8, OECD, IMF, and WTO have achieved something remarkable: the construction of an unprecedentedly dense set of global institutional regulations designed to enhance the power and freedom of international capital. This involves the reduction of regulations that generate ‘unfair treatment’ of companies, the reduction in tariffs and other trade regulations, the opening up of national economies for foreign direct investment in ways that set few conditions on investment, and the hardening up of ‘intellectual property rights’ on things previously considered as outside the realm of the commodity. This neoliberal regulation is sometimes called the New International Financial Architecture (NIFA). Since the global economic crisis, NIFA has not gone away, and it is not incompatible with the G8 concerns with transparency, closing evasion loopholes, and parity of treatment. In a nutshell, the laissez-faire mind-set emanating from the G8 on tax is part of a laissez-faire mind-set already well-established within NIFA – one that has largely survived the global economic crisis but also one that needs considerable re-legitimation.

Campaign clarity

I am suggesting that, from a development point of view, taking tax seriously means thinking about rates of tax and the public good, and the ways and means to use tax and other instruments to regulate capital to make it more socially-beneficial. If these issues are not part of the conversation about tax then issues of transparency and consistency do tend to look like make-over exercises.

I am reminded of another campaign issue during the late New Labour years in which questions of fairness and justice also became rather muddied between a neoliberal makeover and other more radical approaches. This was trade justice, and the process within which trade justice became a discussion about ‘level playing fields’ for some and reclaimed sovereignty for others. As the Trade Justice Movement, Oxfam, the UK Government, WTO and others discussed sovereignty, protectionism, and special and differential treatment, all under the rubric of fair trade, it became more difficult to distinguish a clear and radical message on trade. Certainly by the end of the UK’s last G8 in 2005, the campaign coalition Make Poverty History felt that trade was the area in which least progress was made. One reason for this was the ability of Peter Mandelson and others to make a case for ‘free and fair’ trade, something that echoed with some campaigners who were concerned with EU and American agricultural protectionism, but did not necessarily challenge the prevailing neoliberal context and did not support those arguing for the use of trade regulations to distort market prices. Minimally, everyone could agree on a need for fairer trade, and that was the problem. Might this also be a danger with regards to international tax regulation?

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About grahamharris0n

Graham is professor of Politics at University of Sheffield. http://www.sheffield.ac.uk/politics/staff/grahamharrison
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