New research commissioned by Christian Aid shows how billions of pounds are lost each year to countries both rich and poor.
The data forms the basis for a new Christian Aid report 'False Profits: robbing the poor to keep the rich tax-free',of which I am co-author. The findings are a shocking indictment of a financial system that allows such abuse to thrive.
Paying as little tax as possible, regardless of the social consequences, has for many become an acceptable way of doing business. The money lost could be used to provide schools, hospitals and better living conditions worldwide.
Known collectively as “trade mispricing” the abuse involves manipulating figures to keep profits low in countries where they will incur a higher level of tax.
The major culprits are subsidiaries of the same parent multinationals filing false figures when they trade with each other, and companies that are independent of each other making secret deals to do the same thing.
Much of the money flows via tax havens into the pockets of shareholders in the industrialised world. All too frequently, the victims are poorer countries where the tax authorities have neither the expertise nor the resources to fight back.
The research, broken down by country and by trade sector, shows that between 2005-2007 the total amount of capital flow from bilateral trade mispricing into the EU and US alone from non EU countries was an estimated £581.4bn (€850.1bn US$1.1tn).
If tax had been levied on this capital at current rates, non-EU countries would have raised £190.8bn (€279.0bn, US$365.4bn) in revenue.
The findings are consistent with Christian Aid’s recent global estimate that trade mispricing deprives the developing world of US$160bn in tax each year. If allocated in the war against poverty according to current spending patterns, that sum could save the lives of 350,000 children under the age of five annually.
