UNCTAD's Working Paper on FDI, Tax and Development
A new working paper is out that adds an investment and development perspective to the ongoing debate on tax avoidance by multinationals:
- It provides a baseline for the tax avoidance debate, with estimates for the contribution of MNEs to government revenues in developing countries.
- It provides an investment perspective on international tax avoidance, leading to new insights on the links between investment and tax.
- It responds to demand in the international community for new ideas and methodological approaches to examining the fiscal impact of multinational enterprises – including an explicit call in the OECD/G20 BEPS Action Plan.
Recognizing the growing significance of tax avoidance by MNEs, the international community – policymakers in the G20 and beyond, international organizations such as the OECD and the United Nations, and NGOs – are engaged in debate and working on concrete initiatives to counter the phenomenon. The focus of their attention is very much on tax policy, accounting rules and company law, and on initiatives to improve information exchange. Given the fundamental role of investment in building the corporate structures that enable tax avoidance, investment policy should form an integral part of any solution. Conversely, any policy initiative tackling tax avoidance by international investors is likely to affect national and international investment policies.
To help policymakers consider the interdependence and potential synergies between investment policy and anti-tax-avoidance initiatives, we propose for discussion a set of guidelines for synergistic international tax and investment policies. They are based on the following three fundamental principles.
- Promoting sustainable development: A core objective of both international tax and investment policies is financing sustainable development. Investment policies promote private investment and tax policies enable public investment in sustainable development.
- Tackling tax avoidance: MNEs should pay tax where economic activity takes place and value is created. Undue distortions should be minimized to ensure a fair distribution of revenues across countries and a level playing field for domestic and foreign firms.
- Facilitating productive investment: International tax policies and anti-avoidance measures should take a balanced approach considering the total value at stake, including the potential impact on the existing tax base and on future investment for development.
We invite comments on our working paper, and in particular on the proposed guidelines for Coherent International Tax and Investment Policies, through the Blog on Investment Policy Hub. Your feedback will be used to support our ongoing work on the links between FDI, Tax and Development.