A new era of tax transparency?

This guest post is contributed by Vanessa Herringshaw, Director of the London office and Director of Training and Capacity Building for Revenue Watch Institute.

New momentum on country-by-country reporting – consensus grows on links between tax, transparency and development

“We are entering a new era of tax transparency.”

Stephen Timms is the UK Treasury Secretary. He made this statement at the OECD Global Forum meeting on tax and development this week. At the same meeting, the OECD made new commitments in this area, including work on country-by-country reporting requirements for companies.

The meeting and the Secretary’s statement reflect a sea-change in global thinking about the connections between taxes, transparency and development. Not only is improving tax transparency and collection now discussed as core to sustainable development, now governments, companies and civil society are working on how best to achieve it.

The global financial crisis helped establish a new political momentum – lack of corporate transparency clearly contributed to the crisis, and the enormous government contributions to shore up the private sector have led to new calls for corporate accountability. Meanwhile, in the assessment of progress towards the MDGs, there has also been a growing concensus that aid is not enough and only increased domestic revenue generation can fund sufficient and sustained change. Experts increasingly see reducing tax avoidance and evasion are as critical areas for reform.

Reflecting these dynamics, the G20 created the Global Forum on Transparency and Exchange of Information for Tax Purposes. This in turn prompted the OECD to bring together two bodies that have never worked together before – the Committee on Fiscal Affairs and the Development Assistance Committee. On the 28th of January, the OECD announced the formation of a new multi-stakeholder Task Force to implement work in two important areas.

The first relates to improving transparency in the reporting of profits and tax payments. The OECD has recommended that the development of multi-national guidelines are explored for country-by-country reporting by companies. This will be discussed as part of the planned updating of the Guidelines for Multi-National Companies (MNCs) that could be complete by the end of 2010.

This approach will run in parallel to the on-going work to develop a new financial reporting standard for the extractive sector by the International Accounting Standards Board. In his statement on the OECD’s proposals, Timms stated, “I would stress that work to develop such guidelines should not impinge on the IASB’s current work on extractive industries, which the UK fully support.” The draft of the IASB’s new extractives standard will be published in February and the deadline for inputs may be the end of June.

To improve transparency, the OECD will also explore moves to improve sharing of tax-related information between countries. The UK is leading the pack – it has announced that by the end of 2010, it will sign a multi-lateral tax information information exchange agreement with developing countries, and it is inviting other OECD countries to join the same agreement. Timms stated that this is part of a move to automatic exchange of information – “that must be the destination we are heading towards” rather than relying on approaches that only respond to information requests.

The second area of work for the Task Force relates to strengthening the capacity of tax administrations, especially in developing countries and emerging economies. One particular area of focus is likely to be building skills on transfer pricing. A key target will be the new African Tax Administration Forum (ATAF).

The OECD must now move beyond the talk and deliver some practical results. The Task Force members will be selected by mid-March – NGOs will be watching closely to ensure they are adequately represented. The Task Force will conduct a mapping of who is best placed to develop particular approaches, scheduled for completion by June. The OECD review of Guidelines for MNCs, including country-by-country reporting guidelines could be complete by the end of 2010.

Meanwhile, the window for comments on the IASB’s Discussion Draft on Extractives, including discussion of whether to include country-by-country reporting, is likely to be February to June 2010.

For those who see domestic revenues as vital to development, and improved transparency as core to accountability, it is certainly a critical time for action to engage with the OECD and the IASB.


Haiti: We knew what to do even before the earthquake

Brian Tucker, President of Geohazards International (GHI) contributed this article to the Guardian. GHI’s work focuses on reducing loss of life and suffering due to natural disasters in the world’s most vulnerable countries, through preparedness, mitigation and advocacy.

The disaster that struck Haiti, in the form of an earthquake measuring 7.0 on the Richter scale, has delivered death and devastation, ruin and suffering, on a deeply tragic scale. But this was not an “act of God”, in that it was not an event that could not have been foreseen.

While earthquakes are not as frequent as hurricanes in the Caribbean, they are common. Today it is well known that poor design and construction practice results in buildings that are sure to collapse during earthquakes of this magnitude, killing and maiming those caught in them and leaving a trail of social disruption, sometimes for generations.

It’s like seeing an accident caused by a drunk driver you’ve tried repeatedly to stop drinking and driving.

Japan and the US state of California have improved their building codes and construction standards to reflect their seismic vulnerability, and the lethality of earthquakes in both places has been massively reduced during the last century. We know how to mitigate the devastating effects of earthquakes.

For someone like myself, who has devoted most of his professional life to reducing loss of life and suffering due to natural disasters, to see the images coming out of Haiti is like seeing the scene of an accident caused by a drunk driver you have tried repeatedly to stop drinking and driving. (more…)

What does re-building Haiti mean?

This post contributed by John Mutter, Professor of Earth and Environmental Sciences/Professor of International and Public Affairs and Director of PhD in Sustainable Development, Columbia University, NY

The January 12th Port-au-Prince earthquake is almost unique in modern history. It is about the worst natural extreme to affect some of the worst-off people on Earth.   What does disaster recovery mean when this happens?

Poor countries suffer more from natural extremes like hurricanes, droughts and floods than do rich countries.  Everything about richer countries makes surviving such extremes an easier task.

They usually have good institutions of government and, the sad catastrophe of Hurricane Katrina in New Orleans notwithstanding, that can respond quickly to save lives and help re-build them after the disaster.

Insurance is common.  Relatively few lives are lost and although the cost of the damage can seem large in absolute numbers, the losses in proportion to the size of the economy is quite small and can be coped with easily.  Look at the Dow in September 2005; the US economy as whole didn’t notice Katrina.

sand castles waiting to kill their inhabitants

And the Chinese economy didn’t notice the Sichuan Earthquake of 2008 either though around 70,000 people died.  China is still relatively poor in an absolute GDP per capita sense, but growing rapidly.

Both countries are large enough geographically to isolate the physical effects of disasters and have large enough economies that the effects of economic losses can be isolated as well; buffered by the total economic power of the country.

Locally these disasters are immensely harmful; nationally they are not. (more…)

For richer, for poorer

This post was contributed by Jeff Dayton-Johnson, Head of the Americas Desk at the OECD Development Centre

John Stuart Mill decried Nature’s “injustice, ruin and death.” We tend to throw up our hands in despair before natural disasters like the earthquake earlier this month in Haiti — the human cost of which, though not yet tallied, is certain to be catastrophic: unjust, ruinous and deathly.

But is it “natural”?

A Policy Brief by the OECD Development Centre argues that “hazards” — drought, earthquakes, epidemics, floods, windstorms–are naturally occurring, but that “disasters” are not. It’s unfavourable conditions–like irregular urban settlements, environmental degradation and weak regulatory practices–that render a society more vulnerable and less resilient to shocks.

Consider the example of Hurricane Mitch, which struck most of the Central American countries in October 1998, ultimately killing nearly 19 000 people.

Though loss of life, injury, and economic damages of the hurricane were widespread in the region, one of the disaster’s most striking features was its uneven impact across the affected countries. Different countries had differing underlying vulnerability to a hurricane.

If we take per capita income as a crude approximation of vulnerability–richer countries are better able to withstand and recover–we find that the ranking of Central American countries in terms of the severity of the hurricane and a ranking in terms of the poverty of the country would be almost identical. In general, poorer countries fare worse when exposed to a similar shock.

Unfortunately, then, Haiti was not only exposed to the risk of earthquake (a geophysical fact), it was vulnerable to a disaster (a social fact). The coming weeks will demonstrate how resilient Haiti is after the quake.

In societies exposed to risk of natural hazards, there is much that policy makers can do to reduce vulnerability and build up resilience.

This starts with improving the health and education of the poorer members of the society, and extends to monitoring and enforcing building codes and standards.

International agencies and the private sector can play their part by exploring ways to create innovative financial instruments to pool disaster risk and to provide insurance against it.

Out of school and into debt

This post was contributed by Laura Nasr, senior at Mt. Holyoke College (US) who will be part of our new feature column written by university students.

Unemployment in OECD countries is twice as high for youth as it is for all age groups combined — in 2008, 12.4% versus 6%.

With this in mind, college graduates, faced with record student debt and few job prospects, may decide to go to graduate school to wait out the bad economy.

Those who don’t go to graduate school may be either unemployed or underemployed. Either way, the effect is the same: young adults won’t make a comfortable wage until later in life. Certainly it won’t benefit the economy if a large segment of the population can’t afford to spend.

Even those graduates who find jobs may be crippled by record-high amounts of student debt: in 1999, the last year for which comprehensive data is available, average student debt for students in the United States was $19,400, which was about two thirds of per capita income for that year.

Debt in such high amounts affects the choices—spending and otherwise—that a person will make for years to come.

The economic impact of the recession has been discussed in great depth—as it should be—but it is necessary to consider the human effects as well.  (more…)

Point of view: OECD Analyst reports from Copenhagen

What images come to mind when we hear “Copenhagen”?  Ministers sitting around a table and protesters waving banners?  COP15 is also analysts, scientists, businesses and civil society representatives working together on climate-related initiatives…OECD Analyst Christa Clapp tells us what she is doing at COP15:

“While in Copenhagen, I will be speaking at an event sponsored by Eneco, a Dutch energy company. Eneco is supporting the Luz Verde programme to distribute 30 million compact fluorescent light bulbs in Mexico. This is one of the first “programmatic” Clean Development Mechanism (CDM) projects to be approved. It groups similar disbursed projects together to lower transaction costs to access the carbon market and earn carbon credits. Such projects are a first step towards scaling-up carbon market mechanisms. The OECD is working together with the International Energy Agency to support the Annex I Expert Group, which is a group of climate negotiators, on carbon market issues. Our recent papers focus on the strengths and weaknesses of project-based carbon market mechanisms and scaled-up sector-based approaches.

More than 30 countries are already trading in carbon markets, either at a national or sub-national level. Additional countries are discussing how to design new market instruments and potentially link emission trading systems. Decisions taken in Copenhagen may impact the reach of these carbon markets and how they function. At OECD we are actively exploring how carbon markets might evolve post-Copenhagen, building on our recent Economics of Climate Change Mitigation work, which analyzes how carbon market instruments can be used to build up a global carbon market.

To further explore how carbon markets are expanding and evolving, we are bringing together experts and policy-makers for an OECD Workshop on Carbon Markets in April 2010. This workshop will offer an early post-Copenhagen opportunity to investigate these key questions:

  • How can we build up a global carbon market, for example by increasing the number of countries participating, and through direct linking of emissions trading schemes?
  • How will decisions taken in Copenhagen impact incentives for developing country engagement in carbon markets, including the design of “offset” mechanisms?
  • Under what conditions can cities and sub-national actors access carbon market financing for local low-emission projects?
  • How might voluntary markets evolve as compliance markets grow?