business corporate responsibility development economics globalisation

How corporate tax evasion affects the poor

corporate-tax-evasion

It didn’t seem to matter much when the economy was doing well, but suddenly tax evasion is back on the political agenda. I’ve already written about the issue of tax havens here, and I mentioned the Guardian’s eye opening reports into what the FTSE 100 companies actually pay in tax.

Here’s another angle on it – what corporate tax evasion costs the developing world. By registering their interests elsewhere, not declaring profits, or creating subsidiary companies, multinationals are able to avoid paying tax on their activities. This occurs everywhere, but it is most serious in poorer countries where regulation is looser and corruption is easier.

Developing world governments are currently missing out on an estimated $160 billion in unpaid taxes – money that is legitimately theirs, but is whisked away through legal acrobatics. That’s money that could be building hospitals, bridges or schools, but instead just goes to the shareholders of the corporations.

When you consider how much campaigning goes on to encourage ‘more and better aid’, it’s astonishing to put the global aid figure next to the lost tax figures – why is there so little campaigning on tax? We try so hard to encourage greater generosity through aid, but do nothing about the legalised robbery of tax evasion on the other. Poor countries are encouraged to open up and allow foreign multinationals in, the ‘trade not aid’ model, but if companies don’t pay their taxes the poor countries gain nothing.

Fortunately, there is some political momentum to close the loopholes, and I’m optimistic that there may be some progress on this issue in the next year or so. The UK government will play a crucial role in this – they have done their very best to do nothing so far, since many of the world’s most popular tax havens are British protectorates or overseas territories. (When Britain signed the UN Convention on Corruption in 2006 it exempted all its overseas territories, meaning that we wag the finger at African corruption with one hand, and stash their dictators’ stolen millions with the other. )

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