TRANSNATIONAL companies, many of whom have their headquarters in Britain, are legally and illegally withholding billions in taxes from some of the poorest countries in the world, Christian Aid says.
The money would be more than enough to meet all the UN Millennium Development Goals, states the development charity’s report, Death and Taxes, which was launched on Monday at the start of Christian Aid week. It estimates that 1000 children die each day from causes that the lost revenue could have alleviated.
Companies argue that they have a legal duty to minimise or avoid tax. But the report says that, although tax avoidance is legal, responsible companies should not seek aggressively to avoid the taxes that are needed to pay for the essential welfare services and infrastructure in developing countries.
Illegal tax-evasion schemes, such as transfer mispricing and false invoicing, account for $160 billion a year in lost revenue, it says. This figure reflects the research of Raymond Baker, a senior fellow at the US Center for International Policy. Donations from countries and aid agencies are “peanuts” compared to the wealth that has left poor countries in tax evasion.
The report gives many examples of the way the current systems work. It quotes the economist Aseem Shrivastava as saying that the money India has missed out on through tax avoidance would have been “enough to feed each year the 55 million people who go to bed hungry every day”.
The report also challenges what it describes as the “active support” that Britain gives to 30 “morally ambivalent” tax havens in Commonwealth countries and Crown Colonies. Around the world, there are “truly vast” offshore funds invested in more than 70 tax havens, which include some in the UK and Ireland.
The total amount invested accounts for up to £3.5 million million — a sum twice that of the gross domestic product of the UK. “If the veil of secrecy around tax havens were lifted, many of the abuses would simply stop,” the report says.
It describes how companies and governments combine to drive down the price of basic commodities, such as gold, and to arrange light-touch tax and royalty regimes, which often involve bribes. “Secrecy and bribes are the twin curses of countries in the developing world that are rich in natural resources.”
The report recommends that Britain and Ireland should investigate their own part in capital flight and tax evasion from the developing world. Companies should be required to submit detailed reports on their activities, so that they cannot hide the source of profits.
Death and Taxes: The true toll of tax dodging is published by Christian Aid and is downloadable from www.christianaid.org.uk/caw08