G20 SHOULD INVOLVE DEVELOPING NATIONS TO PLUG TAX LEAKS BY GLOBAL FIRMS.

Australia hosted the leaders of the world's 20 biggest economies for the G20 summit in Brisbane on November 15 and 16. Tax policy analysists should increase pressure on the world’s richest nations to involve developing countries in a major operation that seeks to stop multinationals from dodging taxes in poor countries.

In Summary,

• Tax avoidance is technically legal but companies must follow certain rules in reporting profits. Sometimes, they take advantage of bilateral agreements to lie about the source of profits.
• Developing countries which host many of the multinationals lose the most in dodged taxes are not included

From the Tax policy perspective pressure should be increased on the world’s richest nations to involve developing countries in a major operation that seeks to stop multinationals from dodging taxes in poor countries. It is a step that the campaigners argue will help nations like Uganda to handle the perennial problem of dealing with firms that have registered subsidiaries in tax havens.

The G20 leaders’ meeting in Brisbane brought leaders of 20 countries controlling more than 80 per cent of the world’s wealth to discuss youth unemployment, global financial governance and reducing barriers to trade among others.

They talked about tax avoidance which their financial ministers had already agreed on the common reporting standard. If it goes through, it will be a requirement that banks identify and report the tax affairs on non-residents to their home countries as well as force multinationals to report their accounts in each country of their operations.

Although this is noble, the proposal has two flaws. Activists say developing countries which host many of the multinationals but lose the most in dodged taxes are not included. In fact, the multinationals’ country by country reports will only be available to tax authorities, not publicly.

What is required is a global regulation because Uganda cannot solve this problem alone. This will help authorities to access information from other countries as opposed to the situation now where a bilateral agreement is required.  All major scandals in Uganda have in one way or another, involved companies with registered affiliates in tax havens. This shows the extent with which the problem must be dealt with now.

The companies use transfer pricing methods to declare losses, which effectively disqualified them from paying income tax.  Tax avoidance is technically legal but companies must follow certain rules in reporting profits. Sometimes, they take advantage of bilateral agreements to lie about the source of profits. The new effort to tame this is being spearheaded by the Organisation for Economic Co-operation and Development (OECD), a grouping of more than 30 countries that discusses market economy policies for their members.

There is more that Uganda can do in order to benefit from the OECD-BEPS project and G20 recommendations.

Kyambadde Andrew Mukasa.

Tax Associate.