The Panama Papers starkly highlighted loopholes in the international tax regime. Can new action on tax-base erosion and profit shifting rebuild trust in institutions?

OECD countries are losing US$240 billion in tax revenue because of profit shifting by multinationals. That is the figure given by Stephen Carroll, Business Editor at France 24, as he introduces the session on how to build a fair global taxation system.

But Angel Gurría, Secretary-General of the OECD, has some good news. He says that the OECD’s inclusive framework on the implementation of the Base Erosion and Profit Shifting (BEPS) Package, is already working, with EUR 70bn of tax receipts clawed back, and over 100 countries and jurisdictions collaborating.

“It’s the most dramatic transformation of the international tax regime in the last 100 years,” he says.

And the framework includes Panama, he continues.

Isabel de Saint Malo de Alvarado, Foreign Minister of Panama, says that her country had already established an aggressive roadmap to reform tax, even before the Panama papers scandal.

But we need to be careful, she warns, of unintended consequences of tax reform.

The world isn’t doing enough

While these were positive steps in the right direction, still not enough is being done, says Winnie Byanyima, Executive Director of Oxfam International, particularly when it comes to corporate tax rates.

“Tax dodging and rising inequality are connected - it’s a human rights issue,” she states.

EU Commissioner, Valdis Dombrovskis, says that Europe is taking tax avoidance very seriously and has been at the forefront of implementing initiatives set out by the OECD. In addition, he says, moving further than BEPS in terms of information exchange within the EU. “We took a more comprehensive approach and we are strongly addressing bank secrecy,” he says.

But the Mateusz Morawiecki, Polish Deputy Prime Minister agrees with Byanyima, saying that it is an issue that has to be tackled much more decisively, citing the US$10bn lost every year in Poland because of tax evasion.

Valdis Dombrovskis interjects that reform in the EU can only happen as fast as member states agree to proposals. “But the momentum is there” he says. “We want to see corporate tax paid in the countries where the profits are made.”

It’s a global problem and needs a global solution

Winnie Byanyima and Isabel de Saint Malo de Alvarado both point out, however, that in order for a global solution to be reached, every country needs to be at the table of discussion for reforms.

In addition, emerging economies and developed countries have different issues to tackle, says de Alvarado.

The OECD measures don’t touch the issues that hurt developing countries like harmful corporate tax competition, adds Byanyima. We need a second round of corporate tax reforms on a platform that is much more inclusive, she explains.

Low corporate tax rates

Byanyima presses the point about corporate tax rates, arguing that secrecy has to be done away with.

Angel Gurría agrees, saying that public anger is at its peak.

There is plenty we can do, and it helps if it’s done on a global level, asserts Valdis Dombrovskis, such as the principle of effective taxation “so that not only is something subject to taxation of another country but it’s actually effectively taxed,” he says.

But there were also issues of power, points out de Alvarado, who says we need a global governing body. “Who defines if a country is compliant are not?” she asks. “Some of it is open to interpretation.”

The role of business

Winnie Byanyima asserts that it’s not just government policy, but that businesses also have a very important role to play, because they are part of the problem.

“There is a race to the bottom on corporate taxation and it’s worrying when we hear Trump talk about cutting corporate tax and Theresa May may threatening to make Britain a little island with a low tax rate. These are all steps in the wrong direction,” she says.

“Business must see this not as an issue of legal compliance, but as paying their fair share and giving back so that society can function effectively,” she adds.

Gurría interjects that it’s not the lower tax rates that are the problem, but the so-called “sweetheart deals” initiated by governments. “Countries don’t all have to have the same rate, they just have to apply their rate to everybody,” he explains.

The problem is that corporate tax is outdated and out of step with a globalised world, says Winnie Byanyima.

Mateusz Morawiecki concludes the session on a positive note: “I’m very happy that this discussion started because all change starts from the first step, and this is a step in the right direction,” he says. “I am optimistic about the future.”