Tax Justice Network: A transition

jec-2016

John Christensen

Cross-posted, of course, from TJN.

After 13 years, our founding executive director John Christensen is stepping down. We’re delighted that John will stay on and become our new board chair. And I (Alex Cobham) am honoured to accept the role of chief executive at TJN.

Since I took up the post of Director of Research at the start of last year, I’ve had the chance to look back and think about the achievements so far of John and the network. In changing the political weather on these issues, those achievements are nothing short of extraordinary.

Alex Cobham

Alex Cobham

Behind the success of this radical agenda has been the use of high quality research and excellent communications to take clear, innovative solutions into the policy mainstream. The piece below sets out some of the dramatic changes that have taken place, some of the ways that John and TJN have achieved this, and a hint of the work that’s to come. (John would never be so immodest, incidentally – but please forgive me, because the achievements are far from modest.)

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Open Data for Tax Justice: Launch! #OD4TJ

Cross-posted from Tax Justice Network.

od4tj

Every year countries lose billions of dollars to tax avoidance, tax evasion and more generally to illicit financial flows. According to a recent IMF estimate around $700 billion of tax revenues is lost each year due to profit-shifting. In developing countries the loss is estimated to be around $200 billion, which as a share of GDP represents nearly three times the loss suffered by OECD countries. Meanwhile, economist Gabriel Zucman estimates that certain components of undeclared offshore wealth total above $7 trillion, implying tax losses of $200 billion annually; Jim Henry’s work for TJN suggests the full total of offshore assets may range between $21 trillion and $32 trillion.

We want to transform the way that data is used for advocacy, journalism and public policy to address this urgent challenge by creating of a global network of civil society groups, investigative reporters, data journalists, civic hackers, researchers, public servants and others.

Today, Open Knowledge and the Tax Justice Network are delighted to announce the launch of a new initiative in this area: Open Data for Tax Justice. We want to initiate a global network of people and organisations working to create, use and share data to improve advocacy and journalism around tax justice. The website is: http://datafortaxjustice.net/ and using the hashtag #od4tj.

The network will work to rally campaigners, civil society groups, investigative reporters, data journalists, civic hackers, researchers, public servants and others; it will aim to catalyse collaborations and forge lasting alliances between the tax justice movement and the open data movement. We have received a huge level of support and encouragement from preliminary discussions with our initial members, and look forward to expanding the network and its activities over the coming months.

What is on the cards? We’re working on a white paper on what a global data infrastructure for tax justice might look like. We also want to generate more practical guidance materials for data projects – as well as to build momentum with online and offline events. We will kick off with some preliminary activities at this year’s global Open Data Day on Saturday 5th March. Tax justice will be one of the main themes of the London Open Data Day, and if you’d like to have a go at doing something tax related at an event that you’re going to, you can join the discussion here.

od4tj members

Counted, sort of: IFF estimates

If you’re in London on 9 March, I’ll be giving a seminar at King’s College on the range of approaches to IFF estimates (illicit financial flows, that is) and tax losses.  All welcome, just email kings-idi@kcl.ac.uk.

IFF estimates

Unrelated #humblebrag: recent social media rankings, are they worth anything?

CityAM Top 100 UK economists

17.

#ICAEWROAR Top Online UK Influencers: Accountancy

17.

#economia50 (Finance) 

24.

Book launch: Inequality, uncounted

In reckoning the numbers of the people of the Commonwealth, or of a State or other part of the Commonwealth, aboriginal natives shall not be counted.

-Commonwealth of Australia Constitution Act 1900, section 127.

Imagine a world of such structural inequality that even the questions of who and what get counted are decided by power. A world in which the “unpeople” at the bottom go uncounted, as does the hidden “unmoney” of those at the very top. Where the unpeople are denied a political voice and access to public services. And the unmoney escapes taxation, regulation, and criminal investigation, allowing corruption and inequality to flourish out of sight.

This is the world we live in. A world of inequality, uncounted.

We may pride ourselves on being the generation of open data, of big data, of transparency and accountability, but the truth is less palatable. We are the generation of the uncounted—and we barely know it. But things may be changing, albeit slowly.


 

The Wicked Problems Collaborative has launched its first book, ‘What do we do about inequality?’ . The text above is the introduction to my chapter, ‘Inequality, Uncounted’ – which is a lighter, more direct telling of the argument made in the paper published last month in Development.

The indefatigable Chris Ostereich (@costrike) led the project, and edited the book, bringing together a really impressive group of contributors (and kickstarter funding). Below is the table of contents – and here’s the link to the book (it’s on Kindle so yes, on Amazon. Sorry).

TABLE of CONTENTS

ACKNOWLEDGEMENTS
DEDICATION
OPENING VOLLEYS
CONTENTS
FIGURES
WPC CONTRIBUTORS ON TWITTER
EDITOR’S NOTE
THE BLIND MEN AND THE ELEPHANT
PREFACE
INTRODUCTION
WHAT DO WE DO ABOUT INEQUALITY?
1. TO ADDRESS INEQUALITY, THINK GLOBAL | Dylan Matthews
2. THE IDEOLOGICAL STRAITJACKET | Sean McElwee
3. WHAT DOES EQUIPOTENTIALITY BRING TO THE TABLE IN TERMS OF EQUALITY? | Michel Bauwens
4. INEQUALITY, UNCOUNTED | Alex Cobham
5. THE INEFFICIENCY OF INEQUALITY | Daniel Altman
6. IS CAPITALISM UNFAIR? | Chris MacDonald
7. THE PROBLEM OF INEQUALITY | Kevin Carson
8. TOWARDS RENOUNCING PERSONAL PRIVATIZATION | Nicholas Archer
9. THE INEQUALITY OF WILDNESS AND THE NECESSITY OF WILDNESS FOR EQUALITY | Megan Hollingsworth
10. THE STICKINESS OF INJUSTICE | Jennifer Reft
11. NOBLE FICTIONS AND SACRED TEXTS Paul Fidalgo
12. THE VOICES THAT ARE NOT YOUR OWN: MAINTAINING CHOICE IN THE AGE OF THE ALGORITHM | John C. Havens
13. THE EMPATHY DEFICIT: WHY THE INEQUALITY CRISIS IS ALSO A CRISIS OF EMPATHY | Robin Cangie
14. BILLIONAIRES WITH DRONES: FROM OLIGARCHY TO NEOMEDIEVALISM | Frank A. Pasquale
15. WHAT SHOULD THE WORLD LEARN FROM THE EXPERIENCE OF INEQUALITY IN LATIN AMERICA? | Patrick Iber
16. OCCUPY SANDY AND THE FUTURE OF SOCIALISM | Sam Knight
17. THE “PLACE OF BIRTH” LOTTERY | David Kaib & Chris Oestereich
18. INEQUALITY AND THE BASIC INCOME GUARANTEE | Scott Santens
19. THE AGE OF INEQUALITY: CAUSES, DISCONTENTS, AND A RADICAL WAY FORWARD | Jason Hickel & Alnoor Ladha
20. TWENTIETH CENTURY SOLUTIONS WON’T WORK FOR TWENTY-FIRST CENTURY INEQUALITY | David O. Atkins
21. THE STATE OF AFFAIRS: HEADING FROM BAD TO WORSE | Adnan Al-Daini
22. THE TRAGEDY OF OUR MIDDLE CLASS | Peter Barnes
23. POST-SCARCITY ECONOMICS: WHY ARE SOME PUNDITS AND ECONOMISTS STILL ENAMORED OF AUSTERITY? | Tom Streithorst
24. INCOME INEQUALITY: WHAT’S WRONG WITH IT, AND WHAT’S NOT | F. Spagnoli
25. TURMOIL & TRANSITION | Harold Jarche
26. KNOWLEDGE, POWER, AND A POTENTIAL SHIFT IN SYSTEMIC INEQUALITY | Jon Husband
27. THE QUESTION OF INEQUALITY: A VIEW FROM INDIA | Akhila Vijayaraghavan
28. WHAT YOU KNOW IS BASED ON WHO YOU KNOW | Deborah Mills-Scofield
29. INEQUALITY IS ABOUT THE POOR, NOT ABOUT THE RICH | Miles Kimball
30. TO TACKLE EXTREME POVERTY, WE MUST TAKE ON EXTREME INEQUALITY | Nick Galasso & Gawain Kripke
31. ADDRESSING WEALTH EQUALITY WITH INVESTING SOLUTIONS FROM NATURE, NURTURE, AND SCIENCE | Rosalinda Sanquiche
32. THE LOGIC OF STUPID POOR PEOPLE: STATUS, POVERTY AND GATEKEEPING | Tressie McMillan Cottom
33. POOR CHOICES | Melonie Fullick
34. THE PARTICIPATION GAP | Devin Stewart
35. GETTING THE FRAME RIGHT | KoAnn Skrzyniarz
36. THE FIRST JOB CREATOR | Adam Kotsko
37. LIFE IN THE TREETOPS: A CHOICE OF CHASTENING PRIVATION OR DEBASING PROSPERITY | Chris Oestereich
NOW WHAT?
IT’S LONELY OUT IN SPACE
PARTING SHOTS

 

Three lessons of #Googletax

From @Jason_Spacey

From @Jason_Spacey

 

 

Since news broke that Google has negotiated a deal with the UK tax authority following the latter’s audit stretching back to 2005, criticism has been growing – of the deal, of the UK government and of the company. What might we learn from #Googletax?

1. The world has changed; oh, and life’s not fair

On the face of it, Google may feel a bit hard done by. After years of criticism over your tax bill, you agree to pay £130 million more – and what do get? More criticism. Criticism of your tax bill and, additionally, of your relationship with government.

Well, the world has changed. Nobody quite knew what to say when Starbucks decided in 2013 to raise its tax payment after criticism. Margaret Hodge, famously stern then-chair of the Public Accounts Committee, summed things up by welcoming the payment while stressing that the system still needed sorting.

But the world has changed. Prem Sikka quickly calculated Google’s effective tax rate (given some necessary assumptions on relative profitability of UK operations) at around 2.77%. Richard Murphy suggested tax of around £200 million each year would be about right, as did Jolyon Maugham QC (and like Prem, put Google’s new effective rate near 3%).

Now you might point out that none of these three are exactly ‘tax is theft’ flagbearers. But the tax-twittersphere was surprisingly quiet – where normally it likes nothing more than an event like this as an excuse to accuse each other of committing vile, ideological sins while pretending to analyse objectively, this time things were pretty calm. Nobody seemed keen to commend Google’s tax payment, nor to defend their doing a deal.

In fact, I think there’s a marked difference in public attitudes. The depth and breadth of understanding seems beyond any previous peak (not least the important heights of UK Uncut); and the general sense that a distribution of taxable profit between countries in proportion to the scale of economic activity would be about right. Who knows where that might lead?

It seems overwhelmingly clear that Google has come out of this badly, in terms of reputational impact – and that’s before they appear before the now upcoming Public Accounts Committee hearing. They may feel like they’d have been better off to keep their heads down.

So, life’s not fair.

2. Do no evil

On the other hand… A less aggressive tax position would have allowed Google to avoid (the open audit from which this deal, and the attendant bad publicity arises.

Imagine the conversation:

  • “So, this way we’ll pay tax at about 2.77%. I even think HMRC might go for that.”
  • “Meh. We can pay much less than that.”
  • “Really? Isn’t that, like, pushing it?”
  • “Tax is theft. Tax is evil. And you heard the man: Do no evil.”

No, I don’t suppose it went anything like that. But still: this wasn’t done blind. At some point, someone thought that the position they had was entirely defensible, and any risk (reputational or in terms of subsequent tax assessment) was worth taking; and that’s the position that ultimately got signed off by management and auditors.

As Owen Barder says, CSR means two things: Pay your tax, and don’t be corrupt. With this tax position agreed and hailed as a success by the UK government, there’s presumably no way back on that front. And presumably no corruption to address. So what could Google do now to reclaim its reputation?

I’d say there’s only one thing that might have any impact. And right now, it would still be a long shot. But it’s this: commit in Google’s own, inimitable, data-led way, to publish its full, country-by-country reporting (CBCR).

This would hurt. A lot. As much as Google tax is being picked over now, we’d have much more fun if we had the actual data showing the full difference between where it does business and where it pay tax. But… once it was done, it would be done. And all the pressure would be on Google’s rivals to follow suit, making them the story instead whether they published or not.

Along the way, this might help make Google what it presumably always hoped to be: not just doing no evil, but positively doing a bit of good. If they wanted to go the whole hog, they could even help us knock together the open database which we hope will provide a platform for all the eventually public CBCR data.

3. The Golden Thread is (still) worth following

What of government? After coming out early to announce the Google deal as a ‘victory’, a ‘real vindication of the government’s approach’, Chancellor George Osborne must have spent the rest of his time at Davos kicking himself. But if not, his Conservative colleague Boris Johnson certainly was – writing the next morning that “we should recognise that the fault in the whole affair lies with our national arrangements“. And it got worse for Osborne: a subsequent headline had Prime Minister David Cameron ‘distancing himself‘ from the Chancellor’s triumphal claims.

The government might, like Google, think things are rather unfair. After all, they’ve done a deal to get more tax, not less.  But the nature of the deal, and the fact that taxpayer confidentiality would seem to prevent any effective defence against the 3% claim, leaves them exposed at PAC and more generally.

That’s why this is the right time for the government to take the initiative, get back on the front foot, bring out the disinfectant and mix any other positive metaphors it can think of. David Cameron came to power claiming he would usher in a new era of transparency, and in some aspects of international tax he can fairly claim to have delivered a fair bit already.

In May, the UK will host an anti-corruption summit where it had hoped that the Overseas Territories and Crown Dependencies would follow in signing up to public registers of beneficial owners of companies. It seems increasingly unlikely that this will happen – but the Google debacle provides an opportunity for a real policy commitment that would put the UK, too, back on the side of the angels.

Having helped along the OECD’s mandate to develop a country-by-country reporting standard while hosting the 2013 G8, the government then saw the OECD deliver a technically good standard with the minimum (and most unequal) possible transparency.

The tax justice movement lost that round of the argument because OECD members saw the measure’s real value as being about holding multinationals to account (so only tax authorities needed the data); while multinationals lobbied fiercely against publication, even once they had had to accept the compliance costs.

What was lost was the point that CBCR is not just about companies’ accountability – it’s also about governments’ accountability. You can’t show you’re getting a fair share of tax from multinationals if you don’t publish this data. And you also can’t show that other governments, like Ireland or Luxembourg or the Netherlands, aren’t ripping you off.

This would be the perfect time for the UK government to discover that the Golden Thread applies at home as well as in developing countries, and to announce that it will publish CBCR data itself (in open, machine-readable format, natch); and advocate for this to be an EU-wide measure.

 

EC tax ruling: Belgian opportunity, big 4 at risk?

There’s been a good deal of coverage of the European Commission decision that Belgium’s ‘excess profit’ tax scheme is illegal, and so it must claw back unpaid tax from companies that were able to achieve double non-taxation on profits shifted into the jurisdiction. The focus has largely been on the implications for specific companies. It’s worth thinking more about different jurisdictions involved, and the possible risks facing the big 4 audit firms.

Basis of the EC tax ruling: Guaranteed double non-taxation

First, the ruling seems pretty clear cut, in principle at least, because the ‘excess profit’ approach is so transparently designed to engineer double non-taxation. Much like Ireland’s bad Apple agreement which accepted that the jurisdiction was not entitled to a share of profits that were shifted in but resulted from activity elsewhere, the Belgium scheme determined that any ‘excess profits’ would be exempt from tax.

The scheme defined excess profits as those bigger than an equivalent, purely domestic business would report – in other words, the result of a multinational’s activity elsewhere. Since these were by definition being reported in Belgium and not elsewhere, double non-taxation was the aim and indeed the guaranteed result. Bingo!

Whereas other cases (e.g. LuxLeaks) involved tailored responses to individual companies, the Belgium approach was consistent leading the Commission to conclude simply that:

We did not have to investigate the specific tax rulings to each company that are based on the scheme. They are automatically illegal.

Why Belgium? Who else?

As I said in various interviews, ‘België is niet de grote vis’ (Belgium is not the big fish), and the ruling is fascinating more because of the potential scale if a similar demand for clawbacks were applied to the bigger EU players in the profit-poaching business.

Our study of US multinationals, which we find to shift 25-30% of their global profits, shows that the majority of shifted profit goes through six jurisdictions: outside the EU Bermuda, Singapore and Switzerland; and inside, Ireland, Luxembourg and Netherlands. [New work from the US Joint Committee on Taxation, with access to firm-level rather than aggregate data, puts Cayman ahead of Singapore in the top six; ut the EU jurisdictions remain central.] Using global balance sheet data (predominantly capturing European multinationals), our earlier study confirmed the same three EU jurisdictions and also highlighted the roles of Belgium and Austria.

The figure, drawing from the results of Cobham & Loretz, 2014 using Orbis data, shows the share of declared profit which would be stripped away from each jurisdiction, if profits were to be aligned with each of the measures of multinationals’ economic activity (which was the declared aim of the OECD BEPS initiative). Belgium would stand to lose 25-50% of its declared profits under any measure of activity except intangible assets, a relatively extreme position.

Cobham Loretz 2014 tab4fig-Bel

Consistent with this view of Belgium as a location for profit-shifting by European multinationals in particular, the European Commission states that the clawback will amount to €700m, of which the bulk – around €500m – relates to European multinationals.

So while Belgium may not be such a grote vis internationally – it doesn’t register for US multinationals in the aggregate, for example – it’s certainly big enough for the European Commission to have bothered with.

But the really big money would be at stake if the same type of decision were to be taken with respect to the profit-shifting into Ireland, Luxembourg and the Netherlands. Of these, the relative complexity of mechanisms in the Netherlands (using trusts and special purpose entities for example, rather than blunt rulings) may make it a harder target. But rulings in Ireland and Luxembourg are already in the Commission’s sights. If the doubly non-taxed profits here were required to be retrospectively taxed at applicable statutory rates, the effects would be substantial indeed.

Company calculations

What would that look like from the point of view of companies involved? Consider the Belgian case. Gross profit that might have faced an effective rate of 15-20%, say, in the countries where the underlying economic activity took place, was shifted into Belgium and declared as ‘excess’ and therefore not subject to tax – in any jurisdiction.

Applying the unmitigated Belgian statutory rate instead will have two main results. First, the overall tax paid will almost certainly (assuming interest is dealt with appropriately) be higher than if neither the scheme itself, nor any alternate profit-shifting arrangement, had been used. The Commission notes that for the Belgian companies used, 50-90% of profits were ruled as ‘excess’; so it’s unsurprising that companies like AB InBev are assessing their options.

The second effect is a more forward-looking one: the changes that the Commission decision may imply for current and future profit-shifting strategies. If the possibility exists for retrospective taxation on shifted profits, do companies become less aggressive? Or is there simply a premium put on the more complex and/or iron-clad methods – for example, will Netherlands structures become even more dominant? Will it favour the UK’s CFC and patent box mechanisms, now with the OECD BEPS mark of acceptability, over other (smaller) jurisdictions?

Big 4 risks

A further impact is that on the big 4 and other professional services firms that may have provided the advice on which basis multinationals made the particular profit-shifting decisions – and themselves profited substantially in doing so. If there is a case for companies to sue over bad advice in the Belgian case, imagine the exposure – for example – of PwC, if a substantial share of LuxLeaks cases were equivalently unwound? If so then at some point, given the vast scale of profit-shifting and the potential tax liability if statutory rates rather than 0-1% were to be applied, a question of financial viability could even arise.

Looking forward again, will multinationals approach such tax advice differently if the possibility of retrospective action remains? Does this simply reduce the value of the advice, or change the willingness to consider it?

And for the big 4 and their staff, with the nature – and some of the risks – of selling profit–shifting advice now impossible to ignore, what are the ethical considerations?

An opportunity for Belgium?

Finally, what can Belgium do? Not such a big fish perhaps, but definitely on the hook. The immediate upside is unexpected tax revenue; the downsides are many.

First, the country stands clearly exposed for antisocial behaviour: profit-poaching in a time of austerity, when the social costs of lost revenues in EU partner countries could not be clearer. Second, trust: how will business view the jurisdiction after this reverse? And third, the stability of the model: given the substantial share of profit booked in the country that appears to have been unwarranted, what are the tax implications of losing the right to tax the non-‘excess’ element?

Here’s the opportunity. The one-off revenues from forcible clawbacks should be sufficient to cover for some time the losses from reduced inward profit-shifting. The question is whether Belgium aims to retain a role in profit-shifting – if it tries to appeal the ruling, struggles to regain credibility with multinationals, introduces and promotes new (OECD- and EC-compliant) mechanisms… or if instead, it takes the opportunity of being ‘caught’, and decides to chart a path towards less anti-social fiscal behaviour.

This could, for example, involve taking a lead in pushing for greater transparency of tax rulings; and in advocating for full enactment of the proposed Common Consolidated Corporate Tax Base (CCCTB) and associated proposal for formulary apportionment within the EU, which would eliminate much of the current profit-shifting; and of course publishing country-by-country reporting of multinationals, which would make the extent and direction of it transparent.

Is ‘girl-centred development’ harmful fantasy?

Has the worm finally turned on the promotion of ‘girl-centred development’ in terms of claimed macroeconomic benefits? Daphne Jayasinghe posted on aspects of this yesterday; and the academic literature is pointing the same way.

The Journal of International Development has just published a paper by Cynthia Caron and Shelby Margolin, Rescuing Girls, Investing in Girls: A Critique of Development Fantasies.

The authors analyse “three girl-centred campaigns [and find that they] identify and diagnose girls’ problems and prescribe solutions that not only circumscribe girls’ futures, but are also counterproductive.”

From SciDevNet’s handy summary:

These campaigns do not recognise girls as individuals, each with specific abilities and personal aspirations, but rather assume that all girls want to be educated, raise families and become wage earners,” write Cynthia Caron and Shelby Margolin, two development scholars at Clark University in the United States…

The authors say these programmes support a “development fantasy”, promoting education as a way to “invest in girls” and increase their economic value. The campaigns aim to further economic growth under the guise of girl empowerment, say Caron and Margolin, perpetuating what they see as a “failed development narrative that economic growth inevitably leads to an equitable future for all”.

Has the worm turned? Let’s hope so. The need for a genuine focus on women’s empowerment is far too great for it to be pushed down the channel of fantasy.

Here’s the full abstract:

The girl child increasingly is at the centre of development programming. We draw on Slavoj Žižek’s notion of fantasy to show how and, more importantly, why girl-centred initiatives reproduce the shortcomings of women and gender-focused programmes before them. Through an analysis of three girl-centred campaigns, we illustrate how experts identify and diagnose girls’ problems and prescribe solutions that not only circumscribe girls’ futures, but are also counterproductive. We argue that even as campaigns try to integrate lessons learned from earlier gender and development initiatives, the critical reflection that a Žižekian approach promotes would better enable development actors to reformulate campaigns and fundamental campaign assumptions.

Versions of the same thinking are clearly now influencing some of the campaigns that have been critiqued too – take for example Katrine Marçal’s piece in the 2015 State of the World’s Girls report:

Girls and women are not an untapped economic resource in the world; their work is the invisible structure that keeps societies and economies together.

Things are shifting.

Time for a gendered data revolution

Too many of the big numbers on gender inequality count the cost for GDP – rather than the costs imposed on women. Daphne Jayasinghe, Women’s Rights Policy Adviser at ActionAid UK, calls time. 

Counting gender inequality – which big numbers?

It seems that when it comes to measuring the scale of women’s economic inequality, big numbers really count. Last month the McKinsey Global Institute published its finding that labour market gender inequality represents a $12 tn loss in global GDP. The IMF, the World Economic Forum, the OECD and others have described the “double dividends” of increasing numbers of women in the labour market thereby increasing GDP growth rates .

This analysis makes a striking, headline grabbing argument but what is the purpose? In spite of 1 in 3 women suffering violence and a gender pay gap as high as 30% in some countries, it seems that world leaders and decision makers need more convincing on the value of gender equality.

The fashion therefore is to promote women’s rights in relation to financial returns to the economy. To highlight the growth potential for economies of more women in the labour market, regardless of the exploitative or dangerous conditions they may be working in.

This analysis neglects the fact that neoliberal growth models rely on underpaid women workers as well as a workforce that is fed, clothed and brought up by the invisible cadre of unpaid women carers. Gender inequalities in the home and work place are by no means an inconvenience to global capitalism, they are a precondition for its success.

Counting the costs to women

ActionAid took steps to attach a big number to this debate which challenges this contradiction and measures losses to women themselves. We estimate that women globally could be USD$17 trillion better off each year if their pay and access to jobs were equal to that of men (USD$9 trillion in developing countris). We argue that women’s cheap labour and unpaid work is effectively subsidising the economy by this staggering amount – a result of gender discrimination and women’s economic inequality.

AAid gender gap2

An analysis of this problem that makes a growth potential argument for gender equality neglects the role that economic policies can play in exacerbating inequalities.  An assessment of the benefits of economic justice to women themselves and the economic drivers of inequality is vital.

Analysis of the legal gender barriers to the economy exist in the World Bank’s Women, business and the law project. In contrast, an understanding of the underlying but more pervasive social norms governing gender inequality is constrained by data shortages. For example, less than half of all countries measure unpaid care using time-use surveys.

Talkin bout a revolution

The Sustainable Development Goals agreed last month present an opportunity to improve gender data particularly since addressing discriminatory social norms and institutions has become a new development priority and features strongly across the goal on gender (SDG5) targets. Investments in countries’ capacity to gather data and attention to strong indicators to track the progress of achieving goals are imperative.

Such a gendered data revolution may help move the debate on women’s economic empowerment along from assessing what women could do for the economy towards what they are already doing – often with little recognition or reward.

Ask not what women could do for the economy – ask what they are already doing. 

 

Inquest closed: Connor Sparrowhawk – #JusticeforLB

The inquest of Connor Sparrowhawk (LB) has closed, with a unanimous jury finding: Connor’s death, as a result of drowning following a seizure in the bath while in a Southern Health treatment and assessment unit, was contributed to by neglect.

Much more will be heard of the specific failings on the unit, and in particular of the management of Southern Health. So this is far from the end of the road. But it is an important step towards #JusticeforLB – the extraordinary grassroots campaign that has grown up around Connor’s family, Sara and Richard, GeorgeJulian and many others.

The consistent and persistent uncounting of people living with learning disabilities is a part of, and a reflection of, one of the greatest systemic injustices internationally.

But those statistics, and more often their absence, don’t transmit the full picture. A few of the specifics of Southern Health’s approach, as revealed at the inquest, are worth drawing out.

These are in addition to the documented failures to gather information about Connor, including from his family – such as the history of his epilepsy – and to ensure appropriate training for staff around important aspects of their job – such as epilepsy. [This was a highly costly, specialist unit for people with learning disabilities. One in five people with learning disabilities have epilepsy. One. In five.]      

Withholding information

Repeatedly over the course of events, Southern Health ‘found’ new information that should have been provided to Connor’s family previously. Including sending new information unexpectedly, by courier, in the week before the inquest. This, more than two years after Connor’s death, and after numerous internal and independent reviews.

At best, the implication is a quite exceptional incompetence in the treatment of vital information about people in their care. 

In addition, it was only during the inquest that it came to light that a patient had died on the same unit in 2006 – after, almost unbelievably, an epileptic seizure in the bath.

Connor’s family, between their own professional expertise and the network of support, including a largely pro bono legal team led by a QC, have probably got as close to making the inquest a ‘fair fight’ as anyone ever does. One wonders what happened in the 2006 case. Which leads us to…

Adversarial approach

The UK government’s attempts to deny legal aid to bereaved families – which have been found in breach of human rights law – rest on the idea that such processes are not adversarial.

Connor’s inquest demonstrated beyond any possible doubt the falsity of such a claim. Not only was Southern Health (aggressively) represented, and from the public purse, so too were multiple members of the unit’s then staff, each individually.

The full timeline of @LBinquest is hugely revealing, but the arguments over what directions the coroner could give the jury were especially so. Southern Health’s legal team sought a set of directions to make it less likely the jury could return a verdict on neglect – including by arguing for a dictionary rather than a legal definition, which is an interesting court approach to say the least. The family’s QC, Paul Bowen, told the coroner:

Not adversarial? What happens when the family don’t have a QC to respond?

The last word – for now

In September, the United Nations made the commitment to the Sustainable Development Goals (SDGs), which provide a set of targets for human progress for 2016-2030, and importantly apply to every country of the world.

The SDGs include a requirement to disaggregate main progress indicators according to a range of salient inequalities – including those related to disability. Given that the UK’s prime minister co-chaired the high level panel that first made that proposal, let’s hope that the UK will lead the way by finally delivering on the recommendations of the government’s own inquiry on the need for much better data in relation to people living with learning disabilities. And then the rest…

Over to Connor’s family (and please read the full inquest response from JusticeforLB):

Two years and 7 months ago, our gentle, quirky, hilarious and beyond loved son (brother, grandson, nephew, cousin) was admitted to a short term assessment and treatment unit, STATT, run by Southern Health NHS Foundation Trust. Connor, also known as Laughing Boy or LB, loved buses, Eddie Stobart, watching the Mighty Boosh, lying in the sunshine and eating cake. He was 18 years old.

The care Connor received in the STATT unit was of an unacceptable standard. The introduction of new medication led to increasing seizure activity on the unit, a fact denied by the consultant psychiatrist for reasons only known to her. Connor was allowed to bathe unsupervised and drowned, 107 days later.

Connor’s death was fully preventable. Over the past two weeks we have heard some harrowing accounts of the care provided to Connor. We have also heard some heartfelt apologies and some staff taking responsibility for their actions for which we are grateful. During the inquest, eight legal teams (seven of whom we understand are publicly funded) have examined what happened in minute detail. We have had to fundraise for our legal representation.

Since Connor’s death, Southern Health NHS Foundation Trust have consistently tried to duck responsibility, focusing more on their reputation than the intense pain and distress they caused (and continue to cause us). It has been a long and tortuous battle to get this far and even during the inquest, the Trust continued to disclose new information, including the death of another patient in the same bath in 2006. Families should not have to fight for justice and accountability from the NHS.

We would like to thank everyone who has supported the campaign for JusticeforLB, and hope that the spotlight that has been shone onto the careless and inhumane treatment of learning disabled people leads to actual (and not just relentlessly talked about) change. It is too late for our beautiful boy but the treatment of learning disabled people more widely should be a matter of national concern.

Did NGOs invent a pot of gold? (No.)

A draft paper by Maya Forstater, circulated by the Center for Global Development in time for the Financing for Development conference in Addis, attacks the integrity of many people and NGOs working on tax justice and illicit financial flows.

The claims include:

  • that (some?) NGOs have “contributed to unrealistic public expectations and an appetite for an overly simplistic narrative about a corporate tax ‘pot of gold’” (p.31);
  • that (some?) NGOs tolerate “exaggerated interpretations and misunderstandings”(p.33);
  • that (some?) NGOs do not “engage honestly with debates over economic trade offs [sic]” (p.33); and
  • that this behaviour is comparable to “the use of exploitative and prejudiced imagery in charity appeals” (p.34).

Blimey.

This is a (really) long post, as I’ll try to cover the breadth and strength of Maya’s many claims. I should say that I took part in the first of two meetings of the group CGD convened to look at the issues. This was really quite a constructive coming together of different viewpoints.  But I stood down when the subsequent blog post seemed to ignore most of the common ground and reiterated some earlier attacks on NGOs instead, making some claims about ‘inconvenient truths’ that resurface here. Comparing back, I’m afraid it seems as if the results of the research exercise were pre-determined.

Some main points from the discussion below:

  • The draft paper makes a series of claims without providing any serious evidence: most importantly, a ‘complex truth’ that tax losses are not of ‘problem-solving’ scale but ‘relatively modest in relation to development needs’. The existing evidence, e.g. from the IMF or – strikingly! – the author’s own analysis in this paper of ActionAid’s work, clearly supports the opposing view.
  • In the two other cases where ‘received wisdom’ associated with NGOs is contrasted with ‘the complex truth’, there is in fact no direct contradiction – but the presentation in each case creates an implicit straw man of NGO opposition to the truth.
  • The paper’s main thrust is that there is no ‘pot of gold’ for developing countries – but no substantial evidence is offered to support this assertion. (I’m sympathetic to the idea that this aspect of the tax justice agenda is sometimes overstated, but simply to deny the existing evidence offers no way forward. Indeed this is why I encouraged this work to focus instead on substantive research issues, albeit to no avail.)

I should point out that I was a research fellow at CGD during 2013-2014, and remain grateful to Owen Barder and colleagues for giving me a great deal of space to pursue research in just this area. I hope it may be possible to revise the final draft in such a way that it can make a useful contribution.

Measuring the illicit

The bulk of the attack in the draft paper is dedicated to three elements of ‘received wisdom’, each of which are contrasted with a quite different ‘complex truth’, so I’ll focus on these before coming back to the overarching claims. First, a little bit of context.

As has often been remarked, attempts to estimate illicit financial flows (IFF) are inevitably fraught with difficulty.

By definition, illicit flows are those ‘forbidden by law, rule or custom’: so whether or not they are technically legal, like large-scale tax avoidance, they are always hidden from view where possible. Add to this the fact that the relevant international datasets are often of less than ideal quality and coverage, or sometimes simply held in private by multilateral organisations who should know better, and the problem is of estimating things that are deliberately hidden, on the basis of anomalies in data that are imperfect in any case.

The development of the research field – which has come into being seriously only in the last 15 years – has been led by NGOs, perhaps because academic researchers felt uncomfortable with the degree of uncertainty, or because those at international organisations didn’t see it as a policy priority. At each stage, NGOs and the few academic researchers have challenged international organisations to use their capacity, and ability to access data, to do better; but until this year, there had been no serious response on any aspect of IFF except that of UNODC and the World Bank in their Stolen Assets Recover (StAR) initiative.

The 2009 Illicit Flows report: Eurodad summarising the research contribution of international organisations

Eurodad’s famous 2009 Illicit Financial Flows report, summarising the research contribution of international organisations

Following the G20 meetings in 2009, however, the issues originally promoted by NGOs in the wilderness rocketed to the top of the global agenda. Then in 2013, the G8 and G20 commissioned the OECD to carry out the Base Erosion and Profit Shifting initiative (BEPS), aimed at reducing the misalignment between the location of multinational companies’ economic activity, and where they declare taxable profits.

This year, the resulting research focus of international organisations has borne interesting fruit. The UNCTAD World Investment Report contributes a study estimating developing country revenue losses to one channel of multinational tax abuse at $100 billion per year. Furthermore, researchers at the IMF’s Fiscal Affairs Department suggest, in their Table 6, that the total developing country losses due to BEPS stands at $212 billion per year (in the long-run), or around three times the share of GDP of the losses of OECD members (around $500 billion). It’s worth highlighting that the developing country losses would on average exceed 10% of existing tax revenues.

imf may15 tab6

None of this is to say that we don’t have a long way to go, not least in terms of collating additional datasets, and making existing ones fully available, and in burying down to the country and then the company level; and in methodological improvements, as in any quantitative research field. (Bring it on!) And just because they come from international organisations, these studies themselves are of course not immune from criticism.

But while many aspects of IFF remain ill-estimated at best, and the leading estimates from GFI for example do not include many of the aspects related to multinational tax behaviour, there is no question that thanks to the recent UNCTAD and IMF reports we are in a better position than ever before in terms of understanding the scale of revenue loss associated with multinational tax behaviour in developing countries.

Assessing the ‘received wisdom’

The main section of the paper outlines three ideas, labelled as ‘received wisdom’, and contrasts each with ‘the complex truth’. The three ideas are not specifically attributed to one or more NGOs; rather, “they are a set of perceptions which are often given and reinforced by the overall flow of media reports, infographics, press releases, case studies and campaign publications on this topic and are influential enough to require clarification” (p.9).

The sub-headings here are taken from the draft paper.

Idea 1: ‘Huge amounts’

Straw myth 1Let’s consider first the attribution of this idea to NGOs, and second its truth or otherwise.

Of the three quotes to support the claim that NGOs have promulgated the ‘received wisdom’, one is indeed a clear overstatement of the case, taken from an NGO infographic; one is a newspaper headline (which refers to an NGO report that I’m guessing doesn’t make the claim itself, or would have been used directly); and one is a statement (that strikes me as defensible) from Yale professor of philosophy Thomas Pogge.

Even with this level of cherry-picking, these quotes obviously provide less than compelling evidence if you want to make the case for NGO responsibility for the narrative. But to be fair, I’d say that many NGOs and people (like me!) do indeed think the revenue impact could be ‘problem-solving’, if that means something like ‘with the potential to provide a noticeable human development benefit’; so let’s set the paper’s evidentiary approach aside for now.

To get to the substance of the claim, we need to compare what the paper calls the ‘received wisdom’ and ‘the complex truth’.  There are two important ideas being combined here. One is about scale: the difference between ‘huge’, or more usefully ‘problem-solving’ amounts of revenue, and the alternative that these are ‘relatively modest in relation to development needs’. The other is about location: the question of whether the revenues that could be available would appear in richer rather than poorer developing countries.

Maya has made some useful points on the latter before, complaining rightly that the aggregation into ‘developing countries’ can hide a mismatch between revenues and development need. This doesn’t take into account the role of inequalities that mean most people living in extreme income poverty do so in middle- rather than low-income countries, but the broader point holds: aggregation can obscure meaning.

From the summary: “Any potential gains are likely to be higher in middle income emerging economies, and lower in the poorest countries, in line with levels of FDI although extractive industry rents are likely to offer a significant focus for greater domestic revenues in some countries” (p.2).

It might have been better to consider the data on FDI. While it is true in general that bigger economies have more FDI, the pattern is much more mixed – even allowing for natural resource wealth. Here’s a quick figure with an arbitrary selection of OECD and West African countries, just to highlight that risks of sweeping generalisations are not limited to NGOs.

Straw FDIAnd of course if the claim is about the relationship between FDI and revenues, and we know tax/GDP is strongly correlated with per capita GDP, then lower FDI/GDP in poorer countries might still be associated with higher (relative) potential revenue contribution (i.e. the FDI stock, and hence potential revenues, might still be higher in relation to current tax revenues).

In addition, the paper doesn’t provide any evidence for the claim about the scale of development needs, which seems odd. It does not to provide (nor seek to provide) any proof that the amounts involved would not have powerful effects in low-income countries.

Well; in fact, it does in one particular case.

A box on Malawi (page 12) provides probably the clearest example of why I find this paper so disappointing – what could have been offered as a useful check on use of statistics, descends instead into the absurdity of inadvertently demonstrating the truth of the position being attacked.

The box summarises ActionAid’s work [disclosure: I’m on ActionAid UK’s board] on the mining company Paladin, finding that it cut its tax bill by $43 million, and states that in one year this could have paid for “one of the following: 431,000 HIV/AIDS treatments, 17,000 nurses, 8,500 doctors, 39,000 teachers”.

It is then pointed out, accurately I assume, that the tax revenues relate to six years; and argued that it would be more appropriate to identify what could be achieved annually with the relevant share of the money (rather than offering mutually exclusive alternatives).

The annual bundle of potential services that the foregone tax could pay for, according to the draft paper, is this:

  • a doubling in the number of doctors, AND
  • a 10% increase in the number of nurses, AND
  • enough teachers to reduce average class sizes from 130 to 100, AND
  • 2% of needed HIV treatments.

I guess we could argue about whether or not to call this ‘huge’, though it wouldn’t be a very useful argument. But I don’t see how anyone could deny it is a problem-solving level of revenue.

Would ActionAid have been better to present the statistics this way? Perhaps.

Does it detract from the substantive value of the ActionAid report in any way? No.

Does it support the ‘complex truth’ claim that the amounts involved are modest in relation to need? Quite the reverse – it is stark evidence to the contrary.

The draft paper has taken a potentially useful contribution, dressed it up as an attack, and lost most of its value.

Thinking at the global level, and of the 1.7% of GDP that the IMF sees as long-term annual revenue loss: it is perhaps possible to imagine a distribution of those revenues among countries in which the resulting allocation fails to be ‘problem-solving’ for most; but it’s hardly a claim we could provide evidence for at the moment, and this draft paper certainly does not.

Idea 2: Transfer pricing is tax dodging

Straw myth 2

The second aspect of ‘received wisdom’ attacked in the paper is a little confused. Per the heading and some of the discussion, it is simply the confusion of transfer pricing with tax dodging. Per the box text, however, and other discussion, it is more about whether or not transfer pricing and related rules allow multinationals sufficient room to manipulate prices, via ‘tax havens’, that curtailing this could generate significant revenues elsewhere.

Again, let’s look first at the attribution. The only quotes provided that support the confusion point come from respected academics, rather than NGOs. My feeling is that there is sometimes a confusion of language here, but the fundamental points (that there are rules in place, and that these may sometimes be abused and may sometimes allow distorted outcomes) are widely accepted by the world’s most senior policymakers.

The more interesting distinction is drawn between ‘received wisdom’ that associated revenue implications are large (for countries on either side of ‘profit havens’, as seen in #LuxLeaks); or the ‘complex truth’ that allocating profits within global value chains is difficult.

I must confess I find this one quite confusing. There’s no obvious contradiction between the ‘wisdom’ and ‘truth’. You rarely hear anyone claim international tax rules are simple or easy to comply with (for either multinationals or tax authorities); and it’s almost equally uncommon to hear a suggestion that there aren’t major revenues at risk in a whole range of countries – see e.g. the details of LuxLeaks, or the IMF results shown above.

There just doesn’t seem much disagreement to be had over whether transfer pricing rules are being exploited, to the benefit of many multinationals and a few secrecy jurisdictions, and the (revenue) loss of many countries (with both higher and lower per capita incomes) – at least not in the absence of some pretty striking new evidence.

The existence of complexity doesn’t reduce the revenues at risk, nor justify taking advantage of complexity (nor indeed lobbying to create or retain complexity). And it certainly doesn’t provide evidence against the ‘received wisdom’ suggested, so I think this section really weakens the draft.

The associated paragraphs largely focus on criticisms of some existing work with commodity trade data (including Maya’s very reasonable criticism last year of a Swiss-Zambia mispricing statistic for which I’m responsible). The discussion of the various broader studies in this draft paper is fairly light touch though. It raises a few questions on individual results, and we can easily agree that there is a good case for being cautious about data and methodologies in this area. But what of all the peer-reviewed, academic analysis that is left out?

The failure to engage with the vast bulk of the literature covered in the OECD’s recent BEPS 11 survey, for example, seems odd. The exclusion of pricing issues in relation to management services, intellectual property and debt – for example – seems doubly so. Even if the commodity critique was entirely valid, this section would not provide evidence against the ‘received wisdom’ that it intends to attack. And in addition there is now a range of analyses of individual multinational groups published by forensic investigative journalists of high quality, which go well beyond anecdote.

If we think of international corporate tax rules as the broader set within which TP rules sit, the entire BEPS process is a reflection of significant political and technical consensus on this problem. Do we have enough consistent data, or sufficient quantity of research as a result, to be precise about the scale and overall pattern of the problem? We do not, and this is the subject of much attention at the OECD, Tax Justice Network and elsewhere. Are we unsure about the broad contours of the problem? We are not. Transfer prices of everything from commodities to intellectual property to intra-group debt are manipulated for tax purposes. The scale is large, and uncertain.

The author is of course entirely at liberty to take a different view, and it would be welcome to see supporting evidence for such a position. But without presenting some pretty impressive new findings, I can’t understand why one would simply dismiss the broad consensus that exists, or seek to build a difference of opinion on the scale of a problem into an argument that the entire thing is a (deliberately?) misleading ‘narrative’ created by NGOs.

Idea 3: Money for nothing

Straw myth 3

Perhaps anticipating the reader’s scepticism by this stage, this section begins by noting: “Examples of this belief are rarely seen as direct statements” – this much is certainly true – “but often reflected in the implicit assumptions behind calculations of lost taxes…” (p.18).

The TJN quote offered as supporting evidence is intriguing:

“…tax-sensitive investment is by definition the least useful stuff: accounting nonsense and paper-shuffling that does not involve very much employment creation at all.”

Intriguing for two reasons. First, it doesn’t seem to bear directly on the ‘received wisdom’ claim. But second, because the missing start of the sentence is “But as Section 3.3 explains…” And section 3.3 includes a short literature survey with six references on the incidence and impact of corporate tax. Neither the survey nor any of the references are cited in the draft paper.

Instead, the main thrust of this brief section of the paper is to emphasise that (higher effective) corporate taxes can have negative dynamic effects. A selective survey of a few papers supporting some of these leads to the following conclusion:

“These arguments then, are not reasons to give up on taxing corporations, or necessarily to lower corporate tax rates, but underline the need for tax policy to be supported by economic analysis, rather than based on the assumption that there is ‘money for nothing’” (p.18).

If you believe in the existence of this particular ‘received wisdom’, even without any direct evidence being presented, then this is presumably a useful counter-point: we should be more careful to recognise the wider impacts of taxing corporate profits.

In any case, that’s hard to argue with – so hard, in fact, that you want to ask who would argue to the contrary? Here’s the implicit straw man that the paper has constructed:

“Tax policy should not be supported by economic analysis, but instead be based on the assumption that there is ‘money for nothing’.”

There may be a group of people who believe this (or there may not); and if there were, such a group might object to ‘the complex truth’ of policymakers actually having multiple objectives.

But if there is such a group, it presumably has little overlap with those people and NGOs like TJN that have been researching and advocating over the last fifteen years for a tax policy agenda based on economic analysis, rather than one that ignored the growing reality of abusive multinational tax practices; and for the importance of taking into account multiple objectives such as distribution.

It’s disappointing, and difficult to understand, that the paper would seek to attribute this straw man to those people and NGOs.

Summary: Straw men

It’s hard to see the contribution of this main section of the paper. The ‘complex truth’ with respect to idea 1 is a set of assertions lacking evidence, while any remaining objections to the ‘received wisdom’ are questions of scale that must be addressed by serious research. The ‘complex truth’ in relation to ideas 2 and 3 is hardly disputed, but does not contradict the main points of the ‘received wisdom’.

So the overall effect is to suggest that NGOs hold, or have promoted, extreme or unnuanced views that somehow contradict the known facts. That there is, if you like, in fact a received wisdom which the NGO narrative continually contradicts.

There are two main problems with this. First, the paper does not provide any serious evidence either for its own assertions (on which the entire argument hangs), or that any wrong views (disagreeing with an actually true ‘complex truth’) are in fact held or promoted by NGOs.

And second, even if a new draft were to do so – I’m just not sure that this is a useful way to make an argument: defining the righteous view, and implying that others disagree (or perhaps that they dishonestly pretend to).

That pot of gold

Ultimately, the CGD paper makes the argument that NGOs have exaggerated the ‘pot of gold’ that developing countries could obtain by better taxation of multinationals.

To be upfront on this, I share something of this concern. Specifically, I think the balance of attention here, compared to other aspects of tax systems, has not always been right. (At the same time, I can see good arguments for emphasising this aspect in certain policy situations.)

What do we actually know about the size of that pot though? Notwithstanding all the uncertainties discussed, and the importance of new data and continuing to improve methodologies, the best guess at the moment is probably somewhere near the latest IMF researchers’ piece: that developing country annual revenue losses might be around $200 billion, or north of 1.5% of GDP. Given average total tax revenues less than ten times that size, it’s a pretty big pot. (And all without mentioning the trend for rising shares of profits to GDP, and generally stable or falling corporate income tax revenues…)

That doesn’t mean the pot is all obtainable, or that important advances in other areas aren’t also possible, and clearly we need country-level analyses to understand the specific possibilities. But on the CGD paper’s terms, and in respect of its central claim, this is a decent pot of gold. And not one that rests on the work (or the word) of NGOs, if that’s a concern.

So if we put the mischaracterisation of the narrative, and the role of NGOs aside, the central claim of the paper just does not stand up well itself.

My final sadness about the paper is this. The last section proposes some recommendations for NGOs to improve their ways of working that are really worth discussing.

It may be difficult to move towards positive engagement based on their inclusion in a paper that makes this kind of sustained integrity attack, but I hope it may somehow prove possible to take the conversation forward in a different context.

Last thought: Does it matter?

Despite the claim to be serving the cause of better evidence and clearer debate, the draft paper muddies the waters on the potential revenue benefit from improved taxing of multinationals in developing countries – even as the evidence base has recently been further strengthened.

The timing of its being published, at the kick-off of the Financing for Development conference – the best UN opportunity in years (ever?) to lock in greater policy space for the taxing of multinationals by developing countries – is unfortunate.

The Center for Global Development is an important development think tank, and so this paper, even in draft, may well catch the attention of policymakers at Addis. And while CGD publish individual views rather than institutional ones, this may be seen as more than an individual view because it comes from a CGD process with an advisory group.

For the avoidance of doubt, I don’t think there’s any agenda at CGD – so I guess the content of this paper, its timing and any potential impact on FFD progress is just bad luck.

I very much hope that the final draft of the paper, if indeed there is one, will be quite different. A removal of the most polarising claims, where these are made on the basis of limited or no evidence, would be a good start. What would be valuable instead is a concerted examination of the data and methodologies that have been used for various aspects of revenue loss and other IFF estimates, in order to point the way forward to a strengthening evidence base over time. I hope this is a possibility; but I fear the paper may end up as a missed opportunity to contribute to an important policy research debate.

But: be not downhearted: there is substantial policy focus around the world on taxing multinationals, the research field is healthy and the agenda for new work is plentiful!

And, you know…