Speaking at a debate organised by the CBI at University College London yesterday, Williams, who now chairs the charity Christian Aid, warned that lack of tax revenue could turn developing countries into “failing states”. He called for more transparency from companies and greater consideration of whether tax incentives are justified.
“If the tax regimes of developing nations are not adequate to provide an infrastructure, a support system, health, education and so forth, then eventually we will have more and more failing states which are less and less friendly and constructive environments for business, with increasing levels of dependency and desperation,” Williams said.
His comments add yet more support to the growing international consensus that developing countries need to expand their tax bases and ensure corporations especially are paying their fair share.
In a joint report issued in August, Tax Justice Network-Africa and ActionAid condemned the practice of granting corporate tax incentives, estimating that Ghana, Nigeria and Senegal are losing a combined $5.8bn a year.
The report also found that, while foreign direct investment into West Africa has increased, this is not in the sectors that create the most jobs, concluding that corporate tax incentives are causing a “competitive race to the bottom in the region”.
The OECD agrees that developing countries face significant tax challenges, both nationally and internationally, with particular emphasis on tax avoidance via the legal use of international tax loopholes.
Base-erosion profit shifting (BEPS), tax planning strategies which exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations, is of particular relevance to developing countries which rely heavily on corporate income tax, particularly from multinational enterprises.
Tax revenues in developing countries average just 17% of GDP, compared to 34% in advanced economies.
The OECD is leading a drive to help countries, particularly in the developing world, improve their tax collection.
This includes work with the UN Development Programme on the Tax Inspectors Without Borders initiative to help developing countries build up their tax auditing systems, a Global Forum on Transparency and Exchange of Information for Tax Purposes to combat cross-border tax evasion and a project to monitor the implementation and impact of BEPS.
Referring to the overhaul of international rules governing the taxation of company profits proposed by the OECD, Williams said that while this was a good start a “great deal more” remains to be done, especially in relation to application of the proposals in developing countries.
Yesterday, the European Commission ruled that two “sweetheart” tax deals between the Netherlands and Starbucks and Luxembourg and Fiat Chrysler breached state aid rules.
