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Economics

Published on June 27th, 2013 | by Jack Cowell
Image © White House. 2013

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Africa and Corporate Tax Avoidance

Only three things in life are certainties: taxes, death, and tax avoidance. The fact that it is finally being taken seriously by the G8 members and, more importantly, that it is recognized by most leaders that developing nations must be included is something commendable indeed. Much has been said about this already, yet relatively little has been said about the nature of corporation tax and it’s effect on competitiveness more fundamentally. The fact of the matter is that getting one’s own house in order is a matter of priority but the effect on developing countries could be severe.

Transparency is top of the bill. A problem that we are long overdue in tackling. Off-shore tax havens often hold assets for huge corporations in significant amounts but who exactly these corporations are remains a mystery. These secret holdings can have legitimate use but more often than not they are vehicles for tax avoidance. One person may be the legal holder of an account but the beneficiary could be a company paying no tax on these profits. Eurodad surveyed 69 jurisdictions in 2012. Of these, only a handful demanded that “beneficial ownership” of wealth be recorded. Most required legal ownership to be recorded, and a whopping 27 required no registration of ownership.

How quickly this could turn into a public witch hunt and an inability to allow any company tax breaks in exchange for investment, artificial job creation, charity payments, etc., demands that this transparency not stretch to allowing public access to this information. Full international trasnparency to some independent authority is required, given the fact that governments are never independent of business.

The attack on “transfer pricing” is a welcome one. This is the process by which corporations buy or sell goods or services from one part of their company, at prices set entirely by the company, thereby moving profits to low tax jurisdictions and losses to high tax jurisdictions. This process allowed Starbucks to claim that it makes a loss in Britain, despite having a shop every 10 yards like some sort of yuppy rash.

Most importantly however, is not the well-being of the advanced economies, but that the voice of Africa and other developing nations is heard. African leaders were to warn David Cameron yesterday of the fact that excluding their nations from such transparency rules would do nothing to help them. Such nations lose an estimated £50bn p.a through illicit outflows (Independent). According to the Africa Development Bank, including the outflows from Africa to destinations unknown to domestic treasuries and financial institutions would have seen Africa being the net creditor of the rest of the world for nearly 3 decades from 1980, with illicit outflows of $1.35tn. It is no secret to anyone that companies basically pillage Africa for resources and do not pay any profits back to the nations in question but the scale is still staggering.

As companies are forced then to pay taxes into Africa, the continent may experience some much needed infrastructural investment and industrial development. On the other hand, with little to offer corporations, despite natural resources which yield no value-added profit in themselves, a potential race to the bottom with corporation tax would emerge again leading to Africa being one giant tax haven. To counter this, Africa must secure not only access to the new transparency framework for corporate revenue and legal guarantees of tax collection but also a vast increase in concentrated investment in education, health and technology, beyond the general aid that is given, much of which is lost to war-lords and inefficient governments at the expense of a people in dire need.

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About the Author

Jack Cowell

Jack is from Liverpool and has a Politics degree from Sheffield University. He is mainly interested in domestic politics but also has a keen interest in Africa and Latin America. He also like Formula One, Everton FC, films and ska, reggae and metal music. He is currently spending his time working his way through Asia (the Continent, not the 1980's Prog Rock Band).



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