The Independent Commission for Aid Impact (ICAI) has published a review of the work carried out by the Department for International Development (DFID) in helping developing countries contribute to and implement tax transparency standards, particularly with regard to the OECD’s Base Erosion and Profit Shifting (BEPS) project.

The review rates the department’s performance as ‘amber-red’, saying that while DFID had achieved some positive results with building capacity in partner countries to address international tax standards, it had not done enough to ensure developing country needs and priorities were taken into account, either in policy discussions with other government departments about tax, or in the international processes.

ICAI said DFID did not set clear objectives for its influencing work in relation to international tax avoidance and evasion, and did not monitor its results. The review also said that DFID needed to improve how it uses evidence and learning from its in-country tax programmes.

DFID provided funding to HMRC to establish a Capacity Building Unit on tax. This is now funded from HMRC’s own aid budget, with estimated funding of £22.9m over ten years to 2024.

ICAI says that HMRC’s early use of funds was not good value for money. In the first year of the Capacity Building Unit, half of the funding provided by DFID (£1.17m) was spent on training 15 new HMRC tax experts for domestic roles in order to release existing staff for deployment abroad. HMRC has never achieved more than half of its planned deployment and is unlikely do so.

The report states: ‘As a relatively new player in development assistance, HMRC’s early use of funds did not offer good value for money. Given funds estimated at £22.9 million over ten years, its scaling up plan proved overambitious.’

The report also notes that various stakeholders expressed doubts that technical assistance on highly specialised international tax issues would have much impact, given the more basic problems with national tax systems. There are also concerns that the benefits to DFID’s partner countries of implementing the new standards may have been oversold.

In a new approach, experts from HMRC are being deployed to support DFID bilateral tax programmes for both short and long term advisory roles. 

After a slow start, long-term advisors are now in place in Ghana, Tanzania and Ethiopia, where they are fully integrated into DFID bilateral programmes and able to call on additional specialised inputs from HMRC through short-term missions. Long-term advisers also support Pakistan (working from both London and Pakistan) and the African Tax Administration Forum. Other countries have received support solely through short-term missions.

ICAI states: ‘While at an early stage, our case studies suggest that this is a promising model of collaboration. It enables DFID programmes to call on specialist expertise from HMRC, while ensuring that HMRC’s technical assistance is anchored in a broader strategy aligned to each country’s needs and priorities.’

ICAI says that while it is too early to assess results, tax revenue authorities in Tanzania, Ghana, Ethiopia and Pakistan have expressed their appreciation for the opportunity to work with UK peers and have welcomed the combination of long- and short-term assistance. In Ethiopia, where HMRC has been engaged since 2006, support to the Revenue and Customs Authority has reportedly performed well.

However, there have also been challenges with this partnership. HMRC has sometimes had difficulty finding appropriately qualified staff to respond to partner country needs. Scoping and establishing relationships have taken longer than expected.

The report states: ‘Adapting to DFID’s decentralised structure has also been challenging for HMRC. When the Capacity Building Unit was launched, DFID bilateral tax programmes were at different stages of development and varied in their appetite for its support. These limits on both supply and demand have meant that progress has been slow.

‘Our survey also indicated that both national tax authorities and DFID advisors in partner countries were less convinced that one-off short missions from HMRC experts add much value, in the absence of a wider engagement.’

It points out that HMRC acknowledges that it had limited experience of delivering programmes across a range of developing countries, and states: ‘Having relevant technical expertise may not be sufficient to achieve good value for money, unless departments also draw on DFID’s experience with effective aid programming.’

The report is also critical of DFID’s decision to contribute £3.5m between 2010 and 2016 to support a research centre on tax and development at the University of Sussex.

It states: ‘Its research is well regarded; however in the absence of robust primary data from developing countries, its work on international tax remains largely theoretical.’

ICAI’s report, UK aid’s contribution to tackling tax avoidance and evasion is here.