New joint NGO analysis calls DFIs to action against tax avoidance

A group of nine NGOs launches today a new report called “Development Finance Institutions and responsible corporate tax behaviour: where we are and the road ahead”.

The analysis focuses on the role of DFIs in fighting the risk of public money being complicit in tax avoidance schemes, both assessing the policies currently in place and delineating a margin of improvement through a concrete set of recommendations.

Clear outcome of the analysis is: DFIs are doing too little to encourage responsible corporate tax behaviour. As government-owned institutions that invest in private sector projects in developing countries, DFIs should play a crucial part in ensuring that the companies they collaborate with restrict or eliminate their use of tax havens and reduce the risk of corporate tax avoidance. But this is not the case.

Looking at the publicly available policies on tax of the main DFIs investing in the private sector – notably the World Bank’s International Finance Corporation (IFC), the EIB, the EBRD and regional development banks in Africa, Asia and Latin America – the analysis finds that they are still significantly lagging behind in preventing their funds supporting aggressive tax planning albeit unintentionally.

For what concerns transparency, some aspects of their investments remain shrouded in secrecy. All DFIs need to still make improvements in public access to information to ensure accountability and establish public confidence, as DFIs are using tax payers’ money.

DFIs’ contribution is essential to help drive finance towards the inequality and poverty reduction objectives established by the Sustainable Development Goals (SDGs). Indeed, one of the most effective ways of fighting inequality in societies is through greater tax justice and tax revenues are crucial for developing countries that seek to invest in poverty reducing services while also becoming less dependent on foreign aid.

In the European context, this analysis strengthens the message already highlighted by the European Commission in its communication External Strategy for Effective Taxation earlier this year: the EIB needs to go further than its current transparency requirements to ensure fair tax competition and has “to transpose good governance requirements in contracts with all selected financial intermediaries”.Indeed, in our recent report “The dark side of EIB funds” , we showed that some of the EIB’s operations outside Europe are still covered by a veil of non-transparency and many of the private funds supported by the bank rely on tax havens. The bank appears still unable to account for its clients’ compliance with responsible tax standards, failing to disclose key information regarding its transactions such as the beneficial ownership of any legal structure related to the companies that receive its funds.

That is why Counter Balance is calling for the bank to adopt a fully-fledged Responsible Taxation Policy in 2017, starting from the revision of its Non Cooperative Jurisdictions policy, for which a broad consultation with all stakeholders, including civil society, is absolutely necessary. This needs to be complemented by stringent transparency measures such as country by country reporting for all its clients’ operations, in order to allow full public accountability of the private banks and multinationals financed by the bank.

The increasing central role of the EIB in the European and extra-European financial panorama does not leave any room for keeping the status quo: the bank needs to clean up its act and take the lead in the promotion of responsible tax practices.

Further reading

- Counter Balance, Re:Common (2015): Towards a Responsible Taxation Policy for the EIB
- Counter Balance (2016): The Dark Side of EIB funds: How the EU’s bank supports non-transparent investment funds based in tax havens