Are the G7 really suggesting compulsory arbitration on international tax disputes?

Christian Aid sent us this email yesterday, and it’s a shocker. Back in 2013, the G7 made some pretty strong commitments to tax justice, and we said then we’d be watching them carefully to see if they’d deliver. Well, on this evidence, they haven’t: quite the opposite, in fact. It is worth reproducing Christian Aid’s press release in full:

CHRISTIAN AID RAISES ALARM ON G7 PLAN FOR COMPULSORY TAX ARBITRATION

G7 leaders’ support for fairness in the global tax system is welcome but their backing for compulsory binding arbitration in disputes about multinationals’ taxes is deeply troubling, Christian Aid said today.

After meeting in Elmau, Germany, G7 leaders’ declared themselves ‘committed to achieving a fair and modern international tax system which is essential to fairness and prosperity for all’.

In a surprise move, they also backed OECD (Organisation for Economic Co-operation and Development) work on binding arbitration in international disputes about how particular multinational companies are taxed. The OECD had not suggested that it was consulting on compulsory arbitration – but the G7 declaration suggests otherwise.

Joseph Stead, Christian Aid’s Senior Adviser on Economic Justice, warned that compulsory binding arbitration could stack the international tax system yet further against people living in poverty.

“Not content with failing adequately to engage developing countries in the process of international reform of the rules on taxing multinational companies, it now seems that the G7 is keen to tell developing countries that they should also forfeit all power over how the new rules should be applied,” he said. 

“The G8’s Lough Erne declaration in 2013 referred to ‘restoring confidence in the fairness…of our international tax rules’ and seeking ‘to ensure…that developing countries are able to secure the benefits of progress’. That now looks dangerously close to being hot air,” added Mr Stead.

“Unless any new system of mandatory, binding arbitration is designed carefully, with the full participation of poor countries, this could be yet another way in which developed countries use their economic and political power against the developing world.”

He added that any arbitration process that works for poor countries will have three principles at heart: simplicity, transparency and affordability.  “We hope G7 governments agree and are looking to establish new models for arbitration in full collaboration with developing countries,” said Mr Stead.

“Of course, the best way to deal with disputes is to prevent them from arising. The G7’s new support for mandatory arbitration suggests an awareness that the OECD ‘BEPS’ project to catch up with multinational tax dodgers will not prevent disputes. 

“This seems realistic. Because BEPS is not looking at fundamental reform of the international corporate tax system, it will not address the root causes of problems with that system.”

Mr Stead said recommendations from the newly formed Independent Commission for the Reform of International Corporate Taxation (ICRICT) were the best way forward.

“We urge the G7 to look at the corporate tax reform recommendations from ICRICT and to start the move to a proper reform of international tax rules and norms that will work for all countries, and so reduce the number of disputes.”

Mr Stead added that there is increasing awareness of the problems that arbitration can cause in other fields, notably Investor State Dispute Resolution mechanisms in trade and investment treaties.

For more information please contact Rachel Baird on 00 44 (0)207 523 2446, [email protected] or 24 hour press duty phone – 07850 242950