Tax dodging by EU companies is costing poor countries at least $100bn a year because of the EU’s failure to live up to legal obligations to ensure that its policies do not harm developing states, European NGOs said on Wednesday.
A report by Concord, a group of European NGOs, has piled pressure on rich countries to take tougher action on tax avoidance so that developing countries keep their fair share of tax revenues. Tax has emerged as a key issue for developing countries, with leaders such as Ngozi Okonjo-Iweala, the Nigerian finance minister, and Kofi Annan, the former head of the UN, calling on rich countries to do more on tax avoidance and illicit flows. Such flows amounted to between $859m and $1.1bn in 2010 alone.
“Europe cannot continue to give aid with one hand and take away with the other, and tax policy is a classic example of where it’s doing this,” said Laust Leth Gregersen, chair of Concord’s working group on policy coherence for development (PCD). “Billions go to poor countries in aid only to return again to rich countries via tax dodging. The balance sheet shows that the poor in developing countries are losing out here.”
The EU is the only region of the world to have a legally binding commitment to policy coherence for development, set out in the 2009 Lisbon treaty. Under the PCD, the aims of EU development co-operation should not be undermined by other EU policies on climate, trade, energy, agriculture, migration and finance. Total net official development assistance by all 27 EU member states was $73.6bn in 2011.
But Concord said EU institutional mechanisms for preventing, detecting and correcting incoherent policies are still ineffective and inadequate. In particular, the EU and its member states do little to systematically assess the impact of its policies on developing countries.
Concord’s report said the potential and actual development impacts of EU policy choices are largely unexplored. Of the 177 impact assessments made by the European commission between 2009 and 2013 that had potential relevance to developing countries, only 19% actually analysed the potential impact on development objectives, said Concord.
Even when there is awareness that certain EU policies are having direct or indirect negative repercussions on poor people, there is no “robust redress mechanism to trigger the revision of harmful policies”.
“Far too often, we observe confusion around what PCD really means, and a tendency to drop the ‘D’ and focus merely on the co-ordination of departments and policies,” said the report.
“The EU is all talk when it comes to improving the record of its own policies for the benefit of the world’s poor,” said Rilli Lappalainen, a Concord board member. “But years after encouraging commitments were made, little is being done in practice. The EU jeopardises the development potential of many poor countries because of incoherent, short-sighted and self-centered decisions made at home.”
On taxes, Concord calls on the European council – the group of EU leaders – to extend the automatic exchange of tax information among European countries to the developing world.
“The EU should support a multilateral regime for the automatic exchange of tax information that sets the highest standard and that allows developing countries such as Zambia to be included and to access the fiscal information they desperately need,” said Concord.
Development experts also worry that developing countries do not have enough say on taxes in the international arena.
“The EU and its member states have, through fora such as the G8 and G20, given their support to initiatives by the OECD to reform the international tax system,” said Florian Krätke, policy officer with the European Centre for Development Policy Management, a Brussels-based thinktank.
“These include new standards and structures for tax information to be shared automatically between developed and developing countries. Some tax experts have noted that these changes may not go far enough, and instead shore up an already unfair system. It is worrisome that developing countries are strongly underrepresented in these discussions – it is as yet unclear what input they will have on these issues also in the post-2015 development framework.”
The European commission said: “The Concord report claims that up to now the EU has done little to combat tax evasion which would benefit developing countries. But there is solid evidence that much has been done already in this regard by the commission and EU member states since the 2010 communication on tax and development.”
The commission pointed out that the EU adopted legislation in June on country-by-country reporting, which requires large companies in the extractive industry to publicly disclose payments to governments of more than €100.000.
Andris Piebalgs, the EU development commissioner, said PCD has been a priority since the start of his mandate.
“However, bringing the PCD principle to life is not an easy task and requires a gradual shift in how we do policy,” he said. “Today’s publication is well-timed since it comes just weeks before the commission’s own report on PCD progress in October, which will present many good examples of PCD work and progress. For instance, in 2012, we launched a study to assess the impacts of biofuel production in developing countries from the point of view of PCD. I intend to follow up this year with a study looking more closely at trade.”