April 26, 2013
The Honourable Steven Harper, Prime Minister of Canada
Dear Prime Minister,
I am writing to you in advance of the June G-8 Leaders’ meeting in County Fermanagh, Ireland.
The Halifax Initiative is a coalition of 20 Canadian environmental, development, faith-based, human rights and labour organizations concerned with international economic justice issues. We coordinate research, analysis, education and outreach focused on the democratization of the international financial system to achieve environmental sustainability, poverty eradication and the equitable redistribution of wealth. In recent years, we have promoted improved transparency and regulatory reform in international finance with an emphasis on curtailing illicit financial outflows from developing countries.
We are very pleased that Prime Minister Cameron has announced that the problem of corporate tax avoidance will be a key agenda item at the June G-8 meeting. Prime Minister Cameron has recently called for an end to corporate secrecy and proposed that the beneficial ownership of companies be made available in public registries. We also take note of the recent report from the OECD, "Addressing Base Erosion and Profit Shifting," which reported that profit-shifting by multinational companies significantly contributes to the erosion of domestic tax bases. We hope that you and your G-8 colleagues will address these problems as they have adverse impacts on developing countries. Indeed, recent research shows that the world’s 49 poorest countries lose at least $160 billion a year due to profit shifting by multinational companies.
You have played an important leadership role internationally with respect to child-maternal health. Illicit financial outflows from the world poorest countries have a direct impact on the availability and quality of health services for women and children. Colleagues at the University of Massachusetts estimate that illicit outflows from sub-Saharan Africa result in 77,000 additional infant deaths annually in the region due to lack of investments in basic health programs.
We and our international colleagues have offered a number of proposals to address these problems. I have taken the liberty to briefly outline them below.
1) We believe that the beneficial ownership of public and private companies, and the beneficiaries and trustees of trusts and foundations, should be publicly disclosed through national company registries. Financial institutions and service providers should be required to identify the beneficial owners or controllers of companies, foundations and trusts seeking to open an account or undertake transactions. We urge G-8 leaders to agree on common standards of information and a mechanism for automatic information exchange among governments, including with developing country authorities.
2) We believe that the adoption of a system of multilateral exchange of tax information is essential to deal with the problem of tax avoidance. All governments should collect from financial institutions data on income, gains, and property paid to non-resident individuals, companies and trusts and automatically provide this information to the jurisdiction in which that individual or company is resident.
3) Current protocols with respect to how multinational companies are taxed are out-of-date. We believe that "country-by-country" reporting should be adopted as the international accounting standard for multinational corporations in order to deter profit-shifting. Country-by-country reporting would require reporting of sales, assets, number of employees and costs, profits, and taxes paid in each jurisdiction in audited corporate annual reports and tax returns. The adoption of this standard would help ensure that taxes are levied and paid in the jurisdiction where actual economic activity is taking place. We are very encouraged by advances in the European Union towards this goal.
4) We support the call of many developing countries to transform the UN Committee of Experts on International Cooperation in Tax Matters into an inter-governmental commission with significant representation from developing countries. International tax policy has been dominated by the OECD, an association of 34 developed countries. Developing countries feel that their interests with respect to tax matters are not represented and want an international forum where their needs and concerns on tax matters are taken into account.
5) We believe that Canada and other members of the G-8 could provide important capacity-building support to developing countries in order to improve tax administration systems. The OECD and some G-8 countries are already providing support to developing countries, including training of tax administrators and auditors. Prime Minister Cameron announced last week that a new unit has been established in the Department for International Development focused on improving tax administration systems. Canada should explore opportunities to provide assistance of this nature, especially in Africa.
These proposals are ambitious. However, the stakes are high. If illicit financial outflows from developing countries can be curtailed, it could lead to major improvements in the lives of millions of poor people in the global South.
We hope that Canada will exercise its traditional leadership role at the G-8 and that you personally will promote transparency in international finance and the adoption of measures to improve tax compliance.
Chair, Coordinating Committee
Cc The Honourable James Flaherty
Mr. Peter M. Boehm, Deputy Minister, Foreign Affairs
Mr. Gordon Venner, Associate Deputy Minister, Foreign Affairs
Mr. Murray Rankin, NDP Revenue Critic
Mr. Scott Brison, Liberal Revenue Critic