Corporate tax avoidance costs poor countries up to 26 times more than rich ones

20 Apr 2016
We knew global corporations were avoiding tax, now the Panama-papers leaks have shown us that world leaders are at it too.
But with all the media froth around  the issue, it’s important to emphasise that as the Panama leaks have  brought the issue of tax avoidance to the fore, they present us with an opportunity to genuinely put forward positive policy solutions.
As ActionAid put it: “These leaks and others before them reveal a glaring truth: tax dodging is both a cause and a consequence of inequality. Most of the activity that the leaks uncover is legal, and part of the reason that it’s legal to keep money secret and untaxed is because of the undue influence that the very rich have over policy decisions.”
But Panama is only the tip of the iceberg, particularly when we consider the issue of tax within the concept of international development. While rich nations like the UK lose between 0.5 per cent and 3 per cent of revenue to tax avoidance, developing countries are hit considerably harder, losing 6-13 per cent— up to 26 times more.
The IMF calculates that every year around $200bn of untaxed income is taken out of poor countries by the international corporations operating on their territory. That is around 50 per cent more than the total amount they receive in aid from rich counties.
An estimated 1,000 children die each day across the developing world because illicit and untaxed income is spirited away from developed countries into tax havens.
It would appear that the notion of poor nations’ ‘aid dependence’ partly stems from corporations’ tax
independence. The Royal Society of Medicine Journal estimates that without the flow of untaxed money leaving the continent, Africa would on average be on course to hit the fourth Millennium Development Goal this year of reducing by two-thirds the under-five mortality rate. Now it will have to wait until 2029.
Christian Aid estimated in 2008 that 1,000 children were dying each day across the developing world from such losses, which are made possible by the financial secrecy offered by tax havens.
Britain facilitates this corruption and the related losses for the world’s public finances – including its
own – by heading the world’s biggest network of tax havens, which allowsthe super-rich to anonymously obscure trillions of untaxed and often illegal wealth.
We have the world’s most restrictive tax treaties with developing countries, often imposed decades ago, which allow UK companies to renege on their fair share of tax.
On a recent trip to Ghana, I met the African Tax Justice Network, who told me that the abuse of corporate tax incentives cost the economy $2.27bn annually.
The Panama leaks have also clearly illustrated the differences between Labour and the Tories on this issue.
Labour’s shadow chancellor, John McDonnell, has for many years been agitating against international tax
avoidance and has called for a systemic reordering of the global tax system to stop companies from shifting untaxed profits into tax havens.
A future Labour Department for International Development would stop using the services of the Big Four
accountancy firms to deliver aid projects if they or their clients continue to use tax havens at the direct expense of the world’s poorest nations.
The Luxleaks scandal demonstrates how the Big Four are in the business of promoting international tax
avoidance, which each year costs developing nations $200bn, 50 per cent more than the total amount they receive in aid from rich counties.
There is a clear conflict of interest in DFID spending aid through these firms to reduce global poverty
because these companies are themselves fuelling legal theft of the developing world’s public finances. This practice undermines development work.
The Panama leaks show that thousands of clients of the Big Four accountancy firms as well as EY, KPMG, PWC and Deloitte themselves have been hiding money in tax havens,
principally the British Virgin Islands, which hosts over half of the 14,000 institutions names in the 11 million documents.
Furthermore, Britain should require that all of its crown dependencies and overseas territories such as the
British Virgin and Cayman Islands attend the anti-corruption summit in May to pressure them to make public the names of the individuals and companies who are hiding untaxed or laundered income on their
Not doing so would mean the summit is a charade. The government should also launch an investigation into the  effects of UK tax treaties on development in poor countries. Ireland and the Netherlands have done this, Britain should do the same.
For too long we have exploited poor countries for our own enrichment. Now we exploit poor countries for the enrichment of private multinationals.
By fixing the global tax system we are also sending a message that Britain supports fair play. We are  saying that we support the poor over the rich, the many over the few and public service over private greed.

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