The Department for International Development (DfID) “should have done more” to give developing countries a voice in the global battle against tax avoidance and evasion, according to a UK aid watchdog.
A new review, published by the Independent Commission for Aid Impact (Icai) on Tuesday, criticises the government department for following a “top-down” approach to including developing countries in international policy discussions on the issue.
Icai, which scrutinises the effectiveness and value for money of UK aid for taxpayers, awards scores on a traffic light system, from green for good practice, to red for poor achievement. The review rates DfID’s overall performance in tackling tax avoidance and evasion as “amber-red” or “unsatisfactory achievements in most areas, with some positive elements”.
Icai also highlights “some poor use of taxpayers’ money”, citing the £1.2m that was spent on training 15 new HMRC UK tax advisers so that existing staff could be deployed abroad, when they were not yet needed.
Developing countries fare worse from tax avoidance by multinationals than OECD countries, due to their greater reliance on corporation tax. A study last year by the UN Conference on Trade and Development estimated that multinationals shift up to $300bn (£231bn) away from developing countries annually.
Richard Gledhill, the lead commissioner for the review for Icai, said that while DfID and the UK government were committed to driving progress on international tax policy to address global challenges and reduce poverty, they could do more.
Gledhill said: “Our sense is … that DfID has adopted too much of a top-down approach driven by the OECD agenda. We think DfID should have done more to look at the priorities of developing countries and to feed these issues into the international tax agenda earlier on, so that developing countries have more input into the process.”
On HMRC’s £1.2m spending on training tax experts, Gledhill said: “Not all of it needed to be spent – and certainly not all needed to be spent in the first year.”
Gledhill said that while DfID was awarded an amber-red rating, the report identified some good practice. For instance, the department was awarded a green–amber score for effectiveness, in recognition of good cross-government collaboration and its partnership with HMRC was “a potentially good model for collaborating on capacity building”.
However, the review said some stakeholders had expressed doubts that such technical expertise on highly specialised international tax issues would have much impact, given the problems with national tax systems. DfID has not assessed areas of potential tension between UK tax policies and the needs of developing countries, it said.
In a set of recommendations, Icai said DfID should promote coherence between the UK’s domestic and development policies on international tax and adopt a more strategic approach to cross-government working around international tax.
Gledhill said that, while international tax reform is a small part of DfID’s work, the issue of tax evasion, avoidance and corruption has moved up the political agenda since the financial crisis.
In recent years, the G20 and the OECD, with support from the UK, have led reforms to the international tax system to tackle the problem. They have promoted new standards in three key areas: exchange of information, disclosure of beneficial ownership to reduce secrecy and to fight money laundering; and also measures to limit the ability of multinationals to structure their affairs to avoid tax.
Nick Bryer, Oxfam’s head of inequality, said: “The fight against tax dodging is global but this report shows that the UK government is not doing enough to ensure developing countries get a seat at the table when international policy decisions are made.
“Priti Patel should work with fellow ministers to put poorer countries’ needs at the heart of plans to tackle tax dodging, which robs poor countries of at least $170bn a year that could fund schools and hospitals.”
Charlie Matthews, head of advocacy at ActionAid, said: “Instead of standing by as the UK pushes tax reforms designed to meet the needs of rich countries, DfID needs to listen to poorer countries and ensure efforts to reform the global tax system are informed by their needs.
“This report should kick-start a cross-government approach to tackling global poverty and tax avoidance … In order to help developing countries stand on their own two feet, the UK needs to crack down on tax havens, fix unfair tax treaties and end the ‘race to the bottom’ on corporate taxes.”
A spokesperson for DfID said: “International tax evasion is a menace that can hurt the world’s poorest and hold back developing economies. The UK’s aid strategy focuses not just on alleviating poverty, but also on helping developing countries build robust institutions and tax systems so they can stand on their own two feet.
“As Icai rightly recognises, DfID has helped developing countries benefit from the new international tax standards and this has been underpinned by effective cross-government collaboration. The UK has a strong record of supporting and mentoring developing countries in this field and will continue to do so.”