Addis Ababa, 14 December 2016 - On 14th December 2016, the Macroeconomic Policy Division hosted an Ad-Hoc Expert Group Meeting to review the study on “Base Erosion and Profit-Shifting in Africa: Reforms to Facilitate Improved Taxation of Multinational Corporations”. The meeting convened experts from across the region and Europe to peer review the Study, and provide critical comments and opinions to assist with the development and enrichment of the Study. The Study which commenced earlier this year was deemed necessary and timely in light of the ongoing global efforts to address base erosion and profiting shifting and the increasing publicity of Illicit financial flows and their damaging effects on the public revenues of developing countries across the world.
The role of domestic resource mobilization in the structural transformation process has been well documented. Domestic resources are necessary to provide the necessary infrastructure to support rapid industrialization and the shift from low-value economic activity to higher productivity activities such as manufacturing and skilled services. Domestic resources support the development of local value chains which creates jobs and increases competitiveness in global markets.
The aim of the Study was to: i) undertake a review of the existing literature and evidence on base erosion and profit shifting practices affecting Africa countries; ii) assess key challenges to implementation of the existing frameworks to address tax avoidance, including the OECD/G20 BEPS Package, according to high priority areas identified by African countries; and iii) present a selection of emerging and noteworthy suggestions for African countries to consider as alternatives or complementary actions to future reforms. These could include research studies, toolkits, reform packages and methodologies explored by practitioners, researchers, policymakers and other stakeholders.
The study highlighted that although Africa’s economy has grown at an average of 5 percent annually, from 2000-2014, the growth has not translated into sustainable and inclusive development. As well as eroding an already limited tax base in Africa, the study revealed that tax avoidance by multinational corporations, if left unaddressed, provides an incentive to dodge taxation in other countries of operation, producing an uncompetitive tax burden on those businesses that do pay their taxes, and undermining voluntary tax compliance due to perceptions of unfairness. The Panama Papers illustrated the colossal scale on which corruption fuels tax evasion and avoidance, and it is believed this is just the tip of the iceberg.
As the blueprint for financing for development, the Addis Ababa Action Agenda directs the international community to work towards improving domestic resource mobilization. The meeting highlighted the need for effective international tax cooperation framework which can incentivise all stakeholders equally to tackle tax avoidance. Participants also stressed that tax concessions should be granted in a manner which aligns private interests to public goals, rather than competing in the ‘race-to -the-bottom’. At this time, global efforts have been insufficient and not inclusive of the unique circumstances of African countries which deserve special attention.