Governments from the world’s wealthiest countries discussed the tax-avoiding and profit-hiding behaviour of companies at the G8 Summit in Northern Ireland this week. However, it is still not clear whether all the G8 countries will agree to the plan presented by the UK government. Fairfood focuses on the food and beverage industry and calls on companies to commit to full transparency with regards to transfer mispricing and tax reporting. We also hope governments will seize the chance to make transparency the new normal by eradicating the secrecy and shady practices surrounding tax avoidance and tax havens.
The call for global tax reform has been a hot topic these past months and features prominently at this week’s G8 Summit and at the last EU Summit in May. Many of us also followed the recent Senate hearing in the US targeting one of the world’s most successful companies on its tax practices as well as countless stories in the press revealing the questionable tax behaviour of several other prominent multinationals. Shifting profits from high tax to low tax jurisdictions, also known as tax havens, is all too common and while these activities are technically legal, they are anything but fair. The OECD estimates that developing countries are losing three times more money to tax havens than they currently receive in aid each year.
Tax avoidance features in Fairfood’s Sustainability Agenda as it concerns one of the issues found in the global business activities of the big food and beverage companies we speak to and which have a negative impact on sustainable development. Like all countries, developing countries need tax revenue for health, education, poverty alleviation and infrastructural programmes. But when companies move profits out of the countries in which they operate they effectively deny governments the opportunity to adequately feed and educate their populations while concurrently benefiting from cheap labour and, in some cases, lower environmental standards.
To make matters more urgent, austerity measures implemented in many European countries have led to severe cuts to foreign aid budgets. Recently in the Netherlands, where Fairfood is based, a new development policy was proposed which will reduce foreign aid while promoting trade as a stimulus to growth both at home and abroad; indeed, many donor countries are in favour of such an approach these days. At Fairfood we recognise that trade is a viable tool for development, however we also see a critical need to ensure that private sector activities, those driving international trade, are transparent, sustainable and accountable.
Unsustainable practices, such as tax avoidance, not only mar the reputations of companies caught acting in an unethical manner, they cheat vulnerable economies out of precious revenues. If trade is to bolster economic development, companies with operations in developing countries must act fairly and transparently and pay their taxes. Unfortunately, we continue to encounter too many food and beverage companies that work the system and move their profits out of countries of operation where they could do some real good. It is inexcusable that the enormous potential impact of fairly collected tax revenues are instead misrouted out of developing countries in order to secure even more wealth for the wealthy while local people struggle to survive.
Companies are not benign entities operating in a vacuum. Milton Friedman famously wrote in 1970 that the only “social responsibility” business has is to increase its profits. In the twenty-first century, where our world is more globalised and inter-connected than ever before, where some corporations have greater profits than the GDPs of some nations, where income disparity and unequal distribution of wealth have never been greater, where greed and lack of proper regulation of financial markets have led to a global economic crisis and where trade is touted as a pathway to economic development; it is only reasonable to demand that companies be transparent with regards to their profits and the taxes they pay. Increased transparency, proper reporting and stopping the outward flow of tax revenues from developing countries into tax havens could enable governments to tackle, and even end, big issues like poverty and hunger once and for all.
Image by: walknboston (CC License)