Unitary taxation, Barclays and Africa

I just read the Tax Justice Network briefing which is explained in Richard Murphy’s blog title “Barclays and HSBC make the case for unitary tax in the UK – because we’d have collected £2.6 billion more in 4 years.” Now I haven’t checked out the UK figures at all, but the inclusion of Barclays piqued my interest, because by some measures it has a bigger operation in Africa than it does in the UK.

Unitary taxation makes me nervous, because while the idea is to draw the tax base away from tax havens and towards economic substance, I worry that under most formulae – certainly those acceptable to the G20 – it may also suck the tax base away from developing countries.

The segmental analysis in Barclay’s accounts means that it’s possible to conduct a hypothetical case study to help answer this: would Africa be better or worse off under a simple unitary tax formula as compared to the current system?

I’ve quickly cobbled together a spreadsheet to do that for the last three years. I reproduced the TJN figures to make sure it’s comparable. I couldn’t find a tax figure for Africa, but that’s fine, the best comparison is anyway the tax base, that is, the pre-tax profits. So I applied the same two-factor formula as the TJN report proposes, which divides up the group profits on the basis of staff numbers and turnover. TJN wanted to use fixed assets as a third factor well, but couldn’t find any data. I’ve had a go at it, by using the number of distribution points (branches and sales centres), although this doesn’t change the overall distribution very much.

The result is interesting. When the group as a whole is profitable, Africa does better from this simple unitary approach than it does from the status quo. But because the African operations are not subject to the same shocks as other parts of the business have been, in 2012 Africa is much more profitable than the group overall, and so it does a lot worse under the unitary approach that takes the overall group profits as its starting point. The net effect of the unitary approach over three years is still positive, though: the African tax base is £2.9bn-£3.3bn as compared to £2.0bn under the status quo.

Link to Google spreadsheet

There are of course caveats. The staffing and profit figures I used are for the Africa segment, which doesn’t quite include all the African operations (though the turnover figure does). According to the ActionAid tax haven tracker, Barclays has six subsidiaries in the tax haven of Mauritius, which might distort the Africa figures.

Most importantly, though, Barclays is a big service provider in Africa. It has a lot of sales, a lot of staff, and a lot of branches in Africa. So it’s not a typical case study. I don’t think Africa would do so well out of unitary taxation of a company that was primarily extracting minerals or growing agricultural commodities for export.

Companies are behaving in precisely the way that our international tax system incentivises them to behave

This is my post published on the LSE Politics and Policy blog last week, written before the corporation tax announcement in the budget. It went down a storm with the UK Independence Party’s Financial Services spokesman:

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Tax in the post 2015 development settlement: opportunities and challenges

This is the short paper I wrote for UNDP based on my presentation last week.

Tax is already the biggest source of public finance in developing countries. African governments, for example, raise over ten times more revenue through taxation than through aid. Even if only the “low hanging fruit” are addressed, the result is likely to be significant increased public resources.

This is borne out by a brief study of recent trends in tax revenue in low and lower-middle income countries. A simple average across those countries for which sufficient data is available during the years 2002-9 shows an average annual increase in the tax/GDP ratio during this time of 0.23 percentage points. In a few countries the ratio fell; if we exclude these, the annual increase rises to 0.44 percentage points. If this latter figure is a reasonable estimate for the potential increase that could be achieved through a concerted effort across all low and lower-middle income countries, the result would be a year-on-year increase in public revenues of $22.5 billion.

The potential of taxation as part of the post-2015 settlement is therefore evident. This paper considers some of the challenges inherent in the implementation of policies to increase the tax/GDP ratio.

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A campaigners’ code of conduct and the ABF story

I see Ben Saunders has taken up the ABF story with two really interesting posts, the first relating it to Bill Dodwell’s call for a campaigners’ code of conduct, and second to what on earth Zambia was doing signing its bonkers treaty with Ireland. As I’m writing this in a break from struggling to put together a PhD chapter on developing countries’ tax treaty policy, let’s have a look at the code of conduct point.

Ben is right that some campaigners have not exactly responded to this suggestion in a very mature way (although with the recent ‘tax prat’ incident I don’t think either side is exactly upholding the standards of decent debate). But I also agree with Chris Jordan (in the comments here) that the way companies respond to allegations is rarely whiter than white as well: this was the gist of my post last week, in which I felt it unfair that ABF’s misrepresentations of the ActionAid allegations and – in some cases – of its own position had been, for the media, the last word on the story.

I remembered that I wrote a post a few months ago that made a couple of suggestions for where campaigners could behave a bit differently. I thought it would be interesting to reflect on ActionAid’s ABF report in the light of this.

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What will BEPS mean for developing countries?

English: The logo of the Organisation for Econ...

(Photo credit: Wikipedia)

“Researchers at the OECD are not free to think the unthinkable. They have to take account of the interests of each and every member state.” Or at least that’s what a recent paper in the Review of International Political Economy concludes from its interviews with civil servants. Yet thinking the unthinkable, or at least “thinking out of the box” is just what the OECD secretariat promised to do in its jargon-tastic paper on “Base Erosion and Profit Shifting” yesterday. (It has clearly already had some governmental approval, judging from the extensive footnotes expressing different countries’ reservations about the legal status of Cyprus).

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Is there anything new in this tax avoidance debate?

Over the break I read Sol Picciotto’s seminal International Business Taxation, published in 1992. It’s not hard to see why this book has acquired the status – in academia at least – of definitive account of the international tax system and its foundation. And it is interesting to see that the current outcry over transfer pricing is hardly new.

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Corporation tax raises $1.5 trillion a year

All this talk of tax competition, tax planning, tax avoidance, and so on can make one terribly pessimistic. After reading Tim Harford and Michael Devereux both argue that we may as will give up on corporation tax, I got to wondering how much it actually raises. Luckily I had some data to hand, from the USAID ‘Collecting Taxes’ database.

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