Developing countries lose on companies cheating

Selskaper omdisponerer ofte inntekt fremfor å betale plitkig skatt. Figuren viser vektet gjennomsnitt for tre grupper av land, med dagens skattepliktige inntekt som vekter. Grafikk: IMF
Companies often reallocate income rather than paying the tax. The figure shows the weighted average of the three groups of countries, with the current taxable income as weights. Graphics: IMF

International companies have managed to push the income tax down to zero, and the countries loses up to 15 percent in tax revenue, according to a new report from the International Monetary Fund (IMF).

For the report "Spillovers in international corporate taxation" IMF invited governments, civil society, academia and private sector stakeholders to submit their comments to the preparation of the report. PWYP Norway submitted comments about the negative impact a country's tax system can have on another country. It seems that the comments and our reports are read carefully. IMF is clearer than ever how damaging this kind of tax planning is on developing countries.

Read: "Comments to IMFs consultation on economic "spillovers" in international taxation"

Three main points from PWYP Norway

There were three main points PWYP Norway asked IMF to include in the analysis. The first was that companies must pay taxes in the countries where the resources are extracted. They should also pay taxes in countries where resources are transformed into goods and services. Then it must be paid tax in the markets where sales of goods and services take place.

The report is now completed, and it shows that especially developing countries are mostly affected. It shows that one country's tax system can have a negative impact on other countries.

- Our technical aid work in developing countries often show large revenue losses through gaps and weaknesses in the international tax regime. The losses due to weaknesses in the international tax regime may in some cases constitute 10-15 percent of the total tax revenue, says Michael Keen, Deputy Director of the Fiscal Affairs Department of the IMF in a press release. 

Joint Action Plan

The situation is not helped by the fact that companies increasingly are able to move on intangible assets such as copyrights, to avoid tax. IMF says that the more countries that yield to investors' demands when it comes to taxes, the more the international society will suffer. The fact that international companies reduce the tax they pay and legally reviewing tax claims, has major implications for national economies and undermining its ability to finance government expenditure while struggling with large deficits, says NTB about the report.

G20 and the OECD's Joint Action Plan aims to develop better global guidelines and standards for the taxation of multinational companies, which will function effectively in the international tax, write IMF.

Professor of Economics, Prem Sikka, believes that corporate transfer destroys the tax base in the world.

Read: ”Bedrifters overføringer ødelegger skattegrunnlaget i verden” 

Ministry of Finance without progress

In 2009, the council for capital flight submitted its proposal on what Norway should do to overcome the companies creative solutions to avoid tax, writes ABC News.

Nearly five years after the hearings about the advices from the council for capital flight, "it is still in process under the Ministry of Finance."

In Norway one of the measures that are implemented against tax evasion is the law on country-by-country reporting. A law PWYP Norway has worked hard for. The law became active January 1st this year, and it requires that Norwegian companies in the mining and forestry industry will have to report some key figures, including how much they pay in taxes.

In addition, the Norwegian law is heading in the direction of an expanded country-by-country reporting, which PWYP Norway works for. 15 of the 18 elements are already in place, and we are very close to a solution that makes the transparency law to work as intended. The only thing missing is that all costs are reported for all countries in the notes to the financial statements.

Read the policy briefing about extended country-by-country reporting.