Tax in Developing Countries: Increasing Resources for Development - International Development Committee Contents

Conclusions and recommendations

Country-level tax policy

1.  If developing countries are to improve their collection of tax revenues, it is imperative that elites within those countries pay the correct amounts in personal income taxation, and—critically—are seen to do so. (Paragraph 8)

2.  DFID should seek to support the national revenue authorities of developing countries as they attempt to improve the collection of personal income taxes, VAT and local property taxes. DFID should also encourage and support programmes that engage civil society and trade organisations, academics, journalists and parliamentarians in the tax policymaking process. (Paragraph 13)

3.  We urge DFID to stress—in its dealings with the national revenue authorities of developing countries—the importance of making corporate accounts available to the public. In Zambia, to test the allegations that the process is not working at present, DFID should request access to the accounts of some of Zambia's main corporations, using channels available to the ordinary Zambian citizen. In its response to this report, the Government should notify us of the outcome of these requests. (Paragraph 25)

4.  The Government should encourage the OECD and other standard-setting fora to require the filing of public statutory accounts in all jurisdictions. The Treasury should also press Crown Dependencies to meet these standards. (Paragraph 26)

5.  DFID should support the governments of developing countries as they seek to incentivise hitherto unregistered enterprises to join the formal, taxpaying economy. (Paragraph 32)

Global Level tax Policy

6.  We recommend that the Government introduce legislation similar to the relevant section of the US Foreign Account Tax Compliance Act (FATCA), requiring tax authorities automatically to exchange information relating to UK citizens or corporations. The Government should also use its influence (via the OECD Tax and Development Task Force, and similar avenues) to persuade other governments to follow suit. (Paragraph 41)

7.   To help developing country revenue authorities to tackle transfer pricing abuse, DFID should stress—in its dealings with these revenue authorities—the importance of requiring 'related party transactions' (i.e. transactions taking place within the same corporation) to be declared on annual tax returns. (Paragraph 48)

8.  In order to understand the perspective of multinational businesses on transfer pricing issues, HMRC should meet the CBI to discuss the issue. HMRC should also seek the views of trade unions and civil society organisations. HMRC should report back to the Committee before the end of 2012 to advise us of the outcome of these discussions. (Paragraph 49)

9.   As a matter of urgency, the Government should conduct or commission an analysis of the likely financial impact of the revised Controlled Foreign Companies rules on developing countries. Depending on the results of this analysis, the Government should consider whether to drop its proposals. (Paragraph 55)

10.  The Government should designate a DFID ministerial responsibility for the development impact of tax and fiscal policy. Furthermore there should be an administrative or legislative requirement for the government to assess new primary and secondary UK tax legislation against its likely impact on poverty reduction and revenue-raising in developing countries, and to publish that assessment alongside the draft legislation. (Paragraph 56)

11.   Given that the UK was involved in founding the Extractive Industries Transparency Initiative (EITI), we feel that it should now become an EITI candidate itself. Additionally, the UK should encourage EITI to broaden its scope: EITI should require participating corporations and governments to publish the contracts which exist between them, and should also require the publication of percentage figures in addition to absolute figures. (Paragraph 62)

12.  Irrespective of whether EU-level agreement is reached, the Government should enact legislation requiring each UK-based multinational corporation to report its financial information on a country-by-country basis. Such information should include the names of all companies belonging to it and trading in each country, its financial performance in each country, its tax liability in each country, the cost and net book value of its fixed assets in each country, and details of its gross and net assets in each country. Additionally, the UK should continue to support the progress of similar legislation at EU level. (Paragraph 66)

UK Government's work on tax in developing countries

13.  We re-iterate our earlier recommendation, made in our Report on CDC last year, that the tax payments made by CDC's fund managers and investee companies should be published annually on a country-by-country basis. If certain fund managers or investee companies are unwilling to agree to this, CDC should use alternative companies which are willing to be more co-operative. (Paragraph 71)

14.   We recommend that DFID scale up its technical assistance work with the national revenue authorities of developing countries. (Paragraph 75)

15.   We recommend that HMRC be provided with additional funding, to allow it to scale up its own technical assistance work with developing country revenue authorities. (Paragraph 80)

16.  The UK Government should improve its reporting on its technical assistance on tax and development, reporting cross-departmentally and at a project level on work in this area. (Paragraph 81)

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Prepared 23 August 2012