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.
So we’re expected to believe that, if these taxes were collected by the relevant nations, those resources would be deployed in the way the report says would save 1,000 lives each day? Uh, yeah, pardon my doubt. Also, the article is premised on a false choice. The alternative scenarios aren’t: have investment and higher tax rates; or have investment with lower tax rates. They are: have higher tax rates with less investment; have lower tax rates with more investment. All nations (including the US, let’s note; and actually it’s more than just nations, it’s jurisdictions) are competing for capital, whether that capital is financial or human (Richard Florida does some good work out of Toronto on jursidictional advantage). Finally, natural resources are rarely valuable in-and-of themselves. Value flows from end-users, which is why folks early in the value chain (extraction) don’t typically see the same returns as value chain occupants closer to the end-user. Oil is a nice counter-example, where those owning the assets have cartelized extraction.
In the case of illegal tax evasion, sure, go after the accused. But to label legal means of reducing taxes “evasion” is disingenuous; take it to the individual level. Am I “evading” taxes by contributing to my 401(k) and thus reducing taxable income? How about waiting as late as possible into 2008 to make my HSA and IRA contributions so I can keep the cash in higher-earning accounts longer then still get the full tax benefit? Of course not – I’m taking legitimate actions under current rules to maximize personal cashflow. I still give unto Caesar. In the case of legal tax minimization, how is a corporation different in any way other than scale?
“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”
You can’t have an intelligent discussion of tax policy without distinguishing illegal “evasion” from legal “avoidance.”
Like TWilson [#1], I question the efficiency of channeling money through developing country governments.
If transnational companies have paid all tax lawfully due, they might do more good by sponsoring or contributing to economic-development and social-welfare projects than by voluntarily paying extra taxes.
The British charity ‘Christian Aid’ would be better employed working out why so few people and companies in the developing world seem to pay taxes in the first place. Their public finances are often chaotic.