Why is Tax Justice central to the accountability agenda in the extractives sector?

On 20 April 2018 PWYP hosted a webinar on tax and extractives as part of our ongoing engagement with PWYP members around the world to inform the PWYP 2020-2025 global strategy.

Kwesi Obeng kicked off the conversation with a presentation of the key ideas in his discussion paper, with respondents Daniel Mule (Senior Policy Advisor on tax and extractives at Oxfam US) and Mona Thowsen (Secretary General PWYP Norway) picking up and exploring some of those themes in the context of their work at national and global levels.

Following the webinar, Elisa Peter, Executive Director and Stephanie Rochford, Director of Member Engagement, sat down to discuss what we learned and how some of the discussion might be reflected in PWYP’s strategic planning for 2020 to 2025.

– – – – –

Stephanie: Tax Justice is an umbrella concept that covers a wide range of issues – from the misguided use of tax incentives by governments to attract investment, to the need for cost-related data disclosure (in addition to payment data), to the use of tax havens by multinational companies that divert potential tax revenues, to questions relating to mineral quality and quantity, to the rights of communities (who are the ones most impacted by extractive activities) to access services and livelihoods. What are the themes that you felt resonated most strongly with our members during the discussion?

Elisa: Well it’s clear that members already see PWYP’s work to date as a contribution to a broad Tax Justice movement, given PWYP’s mission to ensure that any benefit (including tax revenues) derived from resource extraction is shared sustainably and equitably. I think that really came out clearly in this conversation – PWYP’s work at national and global levels is happening in the context of a Tax Justice agenda. This includes not only our flagship PWYP campaign on payment disclosure, but also the more recent push for beneficial ownership data, including through the EITI Standard; as well as the calls of many of our coalitions in the ‘home’ countries of multinational extractive companies for more transparency on tax through extended country by country reporting, as Mona from PWYP Norway pointed out. So, really, the question is not so much if but rather how PWYP can situate itself more strategically to work with other actors in the Tax Justice movement in a way that will enhance our respective impact and build on PWYP’s strengths as a global network of civil society activists.

Stephanie: Yes, PWYP’s strength and unique value absolutely lies in our member organisations – and many of them are human rights defenders. To what extent do you see an opportunity for PWYP to bring the rights of communities to the fore by incorporating aspects of the Tax Justice agenda more explicitly into our global strategy?

Elisa: That’s something that I think is becoming more evident: there’s a clear demand to look not only at the revenue collection aspect of a fair tax system but also how those taxes are then spent in a way that meets the needs of citizens, acknowledging that those needs will be very different depending on gender, class, poverty levels and many other factors. The example of Oxfam’s “Even it up” campaign can be a really useful one for PWYP to take inspiration from! Even if a country is able to capture the fair share of revenues generated by extraction through a solid fiscal regime, it is essential that the spending of these revenues is then managed effectively to alleviate poverty and end extreme inequality. Only when all these pieces are in place can natural resource exploitation be a force for good.

Stephanie: On that note, the question of the explicit link between tax and gender equality was posed during the discussion. Maybe that’s an angle where PWYP can add value at a global level?

Elisa: I was really pleased that this question of how tax relates to gender came up, particularly in light of the recent launch of our gender and EITI pilot project, which recognises that the transparency and accountability movement as a whole has not paid sufficient attention to the different ways in which women and men are able to participate in calling for and using extractives data. Kwesi’s response clearly highlighted that tax is absolutely gender discriminatory: for example, when tax breaks are offered for the benefit of corporations and their investors, the result is a reduced provision of the services that women tend to rely heavily on (such as healthcare, etc). So I definitely would like to see us continue to reflect on how we can do more as a movement to recognise and address the specific ways in which women are impacted by seemingly far removed macroeconomics decisions like tax policies.

Stephanie: Mukasiri Sibanda from PWYP Zimbabwe was unfortunately not able to join the webinar today, but he has eloquently expressed the need to ensure that the focus of PWYP’s work, as well as that of the Tax Justice movement, should be rooted in the rights of communities in resource rich countries to access services such as education, healthcare, infrastructure etc.

Elisa: Yes, and Daniel noted that greater participation in, and oversight of, expenditure of extractive revenues is a critical aspect of PWYP’s larger theory of change; but there are also a lot of challenges for PWYP members when it comes to looking at extractive revenues.

Stephanie: That’s true – unlike the issue of tax administration and collection, questions relating to expenditure of extractive revenues ultimately move into the realm of public financial management more broadly, since it’s rare to see ring-fenced budgets which would allow extractive revenue expenditure to be tracked. So the question of accountability here goes beyond extractives.

Elisa: I don’t think there’s a clear answer on how to handle this challenge – as a movement we will need to wrestle with the extent to which PWYP should, or is in a position to, focus our efforts on wider questions of public financial management.

Stephanie: And we have an all too timely example of why that’s not a conversation that PWYP can shy away from…

Elisa: Yes, the arrest of PWYP Niger national coordinator and Board member, Ali Idrissa, came about as a result of peacefully protesting against a finance law that they argue will foster corruption and facilitate tax breaks for the elite. Ali’s arrest brings home the realities of the powerful interests at play when it comes to natural resource extraction, and that accountability – natural resource justice – is not yet achieved and is going to be a hard won battle.

Stephanie: Yes, and this is something that we hope our new strategy will reflect as well – how PWYP members can create spaces to hold those powers to account. In terms of where we go next with our strategic planning in the context of Tax Justice in particular, what are some of the ideas that we want to bring to the PWYP Global Council when they meet in a couple of weeks to refine the 2020-2025 strategic priorities?

Elisa: There were a few key ideas from each of the participants that I found really exciting. For example, thinking about how we can leverage the power of the PWYP collective to tackle issues relating to tax incentives (something that Don Hubert clearly identifies as an entry point for engagement in the PWYP Canada report, “Many Ways to Lose a Billion”). Equally, there seem to be a few windows of opportunity to engage with corporate actors (for example, building on the work of the BTeam to develop responsible tax principles); or with multilateral institutions like the World Bank who are in a position to influence discriminatory tax systems. And there was a suggestion to develop more case studies that evidence the ways in which tax evasion and abuse in the extractive sector is facilitated, and the impact it has.

Stephanie: I agree, those were all really interesting aspects to consider. In addition, there was a clear message on the webinar that we need to capitalise on PWYP’s work over the past 16 years to make payment and contract information available, and to equip our members to use that information to make the evidence-based case for the equitable and sustainable management of the extractive sector.

Elisa: Absolutely – and we will continue that call for transparency which is what provides us with the evidence base to push for change.

– – – – –

Thanks to all those who joined the webinar and contributed your questions and comments. You can find a summary of the first webinar on The Future of Extraction here.

And if you missed the webinar you can catch up by watching the recoding below:

Further webinars on tax and extractives are taking place in French and Russian this week.

Further reading:

In pursuit of transparent trading in Switzerland

Despite having very few natural resources itself, Switzerland has become the world’s major commodity trading hub for natural resources. With its favourable corporate fiscal regime, the country is very attractive for extractive companies. As major companies have set up their headquarters in the country, 60% of the global trade in metal and 35% of global crude oil trading activities take place in Switzerland. But by offering these extractive companies great advantages, such as favourable tax conditions and little transparency regulations, is Switzerland putting profits before people? Through a new law, Switzerland now has the opportunity to change this.

Since two thirds of the world’s minerals and energy resources come from developing countries, the transactions of Switzerland-based trading companies are critical to many resource-rich developing countries. Plagued by the resource-curse, citizens are held back by lack of sustainable and long-term development and much needed public infrastructure. If natural resource revenues were better managed, it would be possible to use these revenues for the socio-economic development of these countries. But internal corruption and mismanagement combined with a lack of transparency of Switzerland-based commodity traders, are contributing to keeping citizens of developing countries poor and the wealth of their resources out of their reach. Because of its key role in commodity trading, Switzerland has a responsibility to participate more actively in ending the resource curse.

It is time to centre policy making on people, and no more on companies. Transactions involving natural resources should be make more transparent as they directly impact the wellbeing of local populations. Trading and transactions that directly affect citizens should include greater transparency in both host and home country. Disclosing payments made by companies to government is an essential prerequisite to ensure payments are monitored and scrutinised. The Swiss government plays a crucial role and should subject the major companies trading on its soil to stricter rules and regulations, including increased transparency.

Through the EITI, great strides in increasing transparency in the extractive industries have been made including some steps towards commodity trading transparency. But the EITI is not the panacea and needs to move towards requiring that countries break down payments by individual sales as well as require a reconciliation with company details. Moreover, voluntary disclosures are not enough as some key opaque countries are not participating in the EITI. Therefore the Swiss government has a key leadership opportunity to close this gap very soon by introducing mandatory disclosures. In November, the Swiss parliament will debate a revision of the Swiss company law. In the current draft, the Swiss Federal Council applied the payment disclosure provisions only to exploration and production activities, thus excluding trading activities—even though traders dominate the Swiss commodity sector. If the government does not alter its course, the Swiss transparency law will have limited added value for citizens of resource-rich countries. It will simply create a law that is not fit for purpose.

As the EU, US, Canada and Norway have made great strides towards adopting a global transparency standard, Switzerland needs to seize the opportunity to play a key role in advancing this in their own backyard. Up until now it has avoided participating but this new law is a key opportunity for the Swiss government to be part of the change and impact the lives of citizens in resource-rich countries.

This article is based on a joint policy paper by NRGI, SwissAid, Berne Declaration and the global coalition PWYP. Download the paper here.

Read our joint press release here.

Switzerland must seize opportunity for commodity trading transparency

Joint press release by NRGI, SwissAid, Berne Declaration and the global coalition PWYP.

EITI can also do more to improve visibility into commodity trader payments

Berne, October 20, 2015—Switzerland, the world’s leading commodity trading hub, must pave the way for more transparency in natural resource payments. The Swiss government should alter its course and include commodity trading in a pending transparency law.

Furthermore, the Extractive Industries Transparency Initiative (EITI) must improve its requirements around commodity trading at its Berne meetings, which start today.

At least 60 percent of the global trade in metals and 35 percent of global crude oil trading occurs in Switzerland, the world’s leading commodity trading hub. The transactions of Switzerland-based trading companies are therefore of critical interest to many resource-rich developing countries.

According to a study by the Natural Resource Governance Institute (NRGI), Berne Declaration (BD) and SWISSAID, Swiss commodity traders paid $55 billion to the governments of ten African countries in exchange for crude oil between 2011 and 2013. This is equivalent to 12 percent of the countries’ combined government revenues, and more than double the amount of global development aid received by those countries.

These payments can incur many governance risks; in order to minimize these risks, more information about the underlying transactions is needed. The EITI has included commodity trading in its provisions, which 48 countries have volunteered to adopt. However, further refinement of the relevant requirement in the EITI Standard is on the agenda at this week’s EITI Board meeting in Berne, Switzerland. In a new position paper, NRGI, BD, SWISSAID, and the global civil society coalition Publish What You Pay (PWYP) strongly urge EITI’s board to require that countries break down payments by individual sales.

“It is only with this level of granularity that reporting delivers valuable and concrete information that can lead to public debate and more accountability, two key principles of the EITI Standard,” said Marinke van Riet, International Director of PWYP and an EITI board member.

There are however many countries which do not participate in the EITI. In order to close this significant transparency gap in the natural resource sector, the Swiss government should subject Switzerland-based commodity trading companies to regulation. Next month, the Swiss parliament will receive a revision of the Swiss company law. In the current draft, the Swiss Federal Council applied the payment disclosure provisions only to exploration and production activities, thus excluding trading—even though traders dominate the Swiss commodity sector. If the government does not alter its course, the Swiss transparency law will have limited added value for citizens of resource-rich countries. Governments in other jurisdictions where commodity traders have a significant footprint, such as the United Kingdom, should implement similar regulations.

Disclosure of payment data relating to the sales of commodities does not substantially affect competitiveness. This has been proven by the recent decision of trading giant Trafigura, which operates out of the Swiss cities of Geneva and Lucerne. The company has committed to disclose all payments to governments of EITI implementing countries, beginning this year. Not all companies will follow suit; therefore both EITI and the Swiss government should act to close the gap.

Read the position paper:

https://www.pwyp.org/wp-content/uploads/2015/10/In_Pursuit_of_Transparent_Trading.pdf

More information and requests for interviews:

Alexandra Gillies, NRGI, +1 646 361 1563, agillies@resourcegovernance.org
Alexandra Malmqvist, PWYP, +44 (0) 20 3096 7714, amalmqvist@publishwhatyoupay.org
Lorenz Kummer, SWISSAID, +41 (0)79 307 2592, l.kummer@swissaid.ch
Oliver Classen, Berne Declaration, +41 (0)44 277 70 06, oliver.classen@evb.ch

Switzerland

PWYP members in Switzerland have worked on a range of issues, from advocating for transparency in the Swiss commodities sector, to supporting the campaigns of African coalitions such as PWYP Niger. Members have also advocated for Swiss mandatory disclosure rules similar to those enacted by the EU.