According to busiweek.com, in 2010, Africa was cheated out of $11 billion through just one of the tricks used by multinational companies to reduce tax bills, according to a new Oxfam report, ‘Africa: Rising for the few’ released last week.
This is equivalent to six times the amount needed to plug the healthcare funding gap in Ebola affected countries of Sierra Leone, Liberia, Guinea and Guinea Bissau.
In 2010, the last year for which data is available, multinational companies avoided paying tax on $40billion of income through a practice called trade mispricing – where a company artificially sets the prices for goods or services sold between its subsidiaries to avoid taxation. With corporate tax rates averaging out at 28% in Africa this equates to $11 billion in lost tax revenues.
Trade mispricing is just one of the ways multinational companies avoid paying their fair share of taxes. According to UNCTAD, developing countries as a whole lose an estimated $100 billion a year through another set of tax avoidance schemes involving tax havens.
Companies also lobby hard for tax breaks as a reward for basing or retaining their business in African countries. Tax breaks provided to the six largest foreign mining companies in Sierra Leone add up to 59% of the total budget of the country or eight times the country’s health budget.
Oxfam’s findings come as African political and business leaders get set to attend the 25th World Economic Forum Africa in South Africa. The main theme of the meeting will be how to secure Africa’s economic rise and deliver sustainable development. Reforming global tax rules so that Africa can claim the money it is due – and which is needed to tackle extreme poverty and inequality – is critical if the continent is to continue its economic rise.
Existing international efforts to tackle corporate tax dodging such as the BEPS (Base Erosion and Profit Shifting) process, led by the Organisation for Economic Cooperation (OECD) for the G20, will leave gaping tax loopholes that multinational companies can continue to exploit across the developing world. Many African nations have been shut out of discussions on BEPS reform and will not benefit from them as a result.
In a press statement, Oxfam is calling for all governments to send their Head of State and Finance Ministers to the Financing for Development Conference in Ethiopia, in July. The Addis conference will set out how the world will finance development for the next two decades and is an opportunity for governments to start developing a more democratic and fairer global tax system.