A UK tax avoidance bill could save developing countries billions
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Version 0 of 1. This week, tax avoidance has once again hit the front pages following the revelations that HSBC helped clients avoid tax through its Swiss banking arm. Tax avoidance is an issue that is not going to go away and, according to our own polling, the public is angry. More than four out of five adults believe tax dodging by corporates is morally wrong. But what should politicians and governments be doing when it comes to preventing tax avoidance in developing countries? One priority will be to introduce concerted international action to close loopholes in the international tax system, and July’s UN conference on financing for development in Addis Ababa provides a unique opportunity to do this. Before they meet in the Ethiopian capital, however, the largest world economies must put their own houses in order by introducing reforms to ensure that the world’s poorer countries are able to raise their fair share of corporate tax. Over the past few years, tax has gone from a niche issue worked on by a few technical experts to the top of the development agenda. Before the G8 last year, David Cameron made it clear tax reform was one of the top priorities for the summit, saying: “We want to use the G8 to drive a more serious debate on tax evasion and tax avoidance. This is an issue whose time has come. All of this in developed and developing countries alike comes down to a simple issue of fairness.” Just last month, a study of illicit financial flows by the African Union estimated that $50bn (£32.5bn) a year is flowing out of the continent unreported and untaxed. The panel’s chairman, Thabo Mbeki, said that “large commercial corporations are by far the biggest culprits of illicit outflows”. In 2008, Christian Aid estimated that developing countries, including lower- and middle-income countries, could be losing out on as much as $160bn a year in potential tax revenue. This was one and a half times the combined overseas aid budget of the whole rich world at the time, and there’s no reason to think the problem has got smaller since then. While this gives us some sense of the global picture, little work has been done to estimate the extent to which UK corporations are responsible for these losses. HMRC and the Treasury have produced no estimates for the profits shifted out of poorer countries by UK companies, or the extent of tax dodging by UK multinationals in the global south. Yet this is a crucial issue. UK tax laws can deter tax avoidance by UK multinationals working in poor countries. For example, our controlled foreign companies or anti-tax haven rules could deter UK companies from using tax havens; instead, it was effectively watered down in 2012. UK regulation could tackle the opacity of the UK’s largest companies, giving governments in developing countr ies a new tool to identify and tackle abuse of their tax systems. But greater transparency has the potential to yield positive effects well beyond helping poor countries; it can help our own exchequer and also help create a level playing field for all UK companies, multinational or not. According to research by ActionAid, alleged tax dodging by the UK-listed drinks company SABMiller (owner of Grolsch and Peroni) may have cost governments in Africa and India “as much as £20m per year”. We estimated that, by siphoning profits into tax havens, the company may have reduced its African corporation tax bill by a fifth. This research tallies with the International Monetary Fund’s estimates of the scale of corporate tax avoidance in developing countries, which they believe “now quite routinely run into tens or hundreds of millions of dollars.” More than 150 of the 350 largest listed companies in the UK say they have direct investments or sales in developing countries. We are not alleging that all of these companies are avoiding tax. But if the the amount by this group of companies, as a whole, were on the same scale as that alleged in the case of SABMiller, then the total loss to developing countries could be as much as £3bn each year. This is more than half of the estimated $8.8bn required to achieve universal primary education. ActionAid has joined with other development agencies including Oxfam and Christian Aid, as well as domestic organisations like the National Union of Students, in urging political parties to introduce a tax dodging bill. A well crafted bill including the measures we propose could recover £3.6bn a year for the UK; if it was effective in tackling tax dodging by UK multinationals, developing countries could benefit by as much as £3bn a year. The UK has been at the forefront of the global call to crack down on tax dodging. Now we need to practise what we preach, so that when the UK leaders go to Addis in July they can ask the world to follow suit and do whatever it takes to fix the global scourge of tax dodging. • Nuria Molina is director of policy, advocacy and campaigns at ActionAid UK |