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The Tax Dialogue: Responsible corporate tax practices in developing countries and

emerging markets

Tax justice and corporate responsibility in LAC

Rodolfo Bejarano Copenhagen, October 29th 2015

GINI index, income concentration by regions, 2012

Inequality in LAC

Wealth concentration in LAC, 2014

Inequality in LAC

- Washington Consensus: neoliberal reforms promoted by Bretton Woods Institutions, liberalization and deregulation of economy and financial sector.

- Facilities for investors to invest in countries in better conditions (tax incentives, profits repatriation, few requirements in social and enviromental aspects, etc) especially in extractive sector.

- This reforms have deepened the extractive and primary exports model and the dependence of natural resources.

Good economic performance… but remain social and economic gaps

Dependency of natural resources in some countries

(% of public revenues, 2010-2013)

Extractive sector in LAC

Tax system in LAC

- Low tax burden, far below the OECD countries.

- It is also heterogeneous across LAC countries: while in

Brazil and Argentina may reach 35% in Guatemala and Rep

Dom can reach 13%. Total tax revenues as % of GDP, 2012

Tax system in LAC

Regressive and inequality in the region: greater weight of indirect taxes (50%).

- Heavy reliance on the income of corporations (especially the extractive sector)

- Three times more volatile than the growth in taxes as a share of GDP since 2000.

Revenue from the exploitation of non-renewable natural resources

- Evasion and Avoidance.

- Multinational companies are present with subsidiaries in tax havens or secrecy jurisdictions.

- Use of opacity of information and mechanisms to profit shifting (transfer pricing, intra-firm loans, shell companies, etc.

- Tax administrations are limitated by international standards and lack of resources.

- In 2012: $ 150 bn go out as IFF. 80% belong to commercial transactions between related companies.

- These amount represents around 3% of regional GDP, which could be used for financing development.

Base erosion of developing countries

Banana case

Comparative value of gold exports from LAC to EU

2009-2014 (Euros/Kg)

Gold exports from LAC to EU

Comparative value of gold exports from LAC to EU

2009-2014 (Euros/Kg)

Telefonica: structure in tax havens

Argentina: soybean sector

Cefid-Ar research: transfer mispricing of biggest companies,

Value of exports 2010-2013

• 2013 and 2014: Yanacocha has charged an unusual cost into financial accounts: “Impairment of long-lived assets”.

• Around US$ 1,038 millions in 2013, and US$ 541 millions in 2014.

• These amounts are attributed to investments in new project called Conga.

• Conga: works were paralyzed by the communities living around the mine.

Perú: Yanacocha mining gold

Yanacocha reports (Buenaventura)

Minera Yanacocha S.R.L.

During the last 2 years Yanacocha reported losses of almost US $ 1,000 million. Conga project investments are charged as cost, affecting revenues for Peruvian budget.

Yanacocha reports (Newmont)

No match in reports of Newmont and Buenaventura. 2014 reported profit before tax of US $ 89 million . By 2013 this figure is US $ 292 million

• The issue is in the agenda and BEPS is going now.

• But we consider it doesn’t solve the problem for our countries.

• The OCDE rules continue with no changes (arm’s length principle, source or resident basis, tax havens, etc.)

• What is needed:

– Evaluate the incentives.

– More transparency of corporates.

– Capacity building of Tax Administrations (own national methods to fight avoidance: Banana sector in Ecuador).

– New rules: Tax body, Unitary taxation.

Where are we now?

Presentación de Campaña

“Que las Multinacionales Paguen lo Justo”

Participación de sociedad civil regional en decisiones globales

• Evaluation on incentives (eliminate, renegotiate).

• Transparency in corporate operations (CbC report, Beneficial Ownership).

• Exchange of information and cooperation between tax administrations (AEoI).

• New international financial architecture (Tax Body, Unitary Taxation, etc.).

Main proposals

Acciones de campaña

alrededor del mundo

Acciones de campaña alrededor del mundo.

Acciones de campaña alrededor del mundo

Latinoamerica

Financing for Development

GRACIAS

THANKS