Corporate tax scams in developing countries the next target

It is staggering that, according to the recent Annan report, Africa loses twice as much each year from tax avoidance, offshoring company registration, financial transfers, and corrupt mining deals secretly hidden, than the total it receives as a continent in aid.   The most recent scandal concerns the concession deal extracted by a FTSE-100 company, the Eurasian Natural Resources Corporation, in the Congo whereby it bought 5 mining stakes which were State assets at far below their true value.   Clearly there were corrupt officials involved as well as scheming and greedy corporate executives, but the loss to the Democratic Republic of the Congo is estimated at $1.3bn.   What puts that in perspective is that that is the equivalent of their total health and education budgets combined.   Given that Annan calculates that the loss to the African continent each year from financial skulduggery of this kind is of the order of £25bn, that indicates that scandals of the ENRC kind are multiplied up to 40 fold.

This is now getting so bad that even Osborne is now laying claim to the high ground by championing his crackdown against tax avoidance at the G7 meeting next month.   What however confers more than a whiff of hypocrisy on this new-found moral scruple is what he doesn’t talk about.   Could this be the same Chancellor who in his 2012 budget offered multi-nationals which opened a finance subsidiary in a tax haven a reduction in corporation tax from the then rate of 23% to an eye-wateringly low level of just 5.5%?   It could be, and it was.   Is this the same Chancellor who, whilst ultimately controlling the UK Crown Dependencies and Overseas Territories which constitute up to half the world’s most frequently used tax havens, declined to take any action to close them down?    Yes, it was again.

If politicians really meant what they said about cracking down on tax avoidance, it’s perfectly clear what they wouold do.   They would (i) impose unitary taxation by which multinationals are taxed where their genuine economic activity occurred, not where they pretended it occurred to collect the huge windfalls from transfer pricing, (ii) close down all UK-controlled tax havens by the simple expedient of refusing to recognise any transactions emanating from them if they failed to comply with the requirement of total tax transparency, (iii) revise the ‘controlled foreign company’ rules which are dropping corporation tax to negligible levels that actually make tax avoidance unnecessary, and (iv) impose a 6-month amnesty for the super-rich to come clean about their tax liabilities, after which anyone found to be using tax havens for avoidance purposes would be subject to a levy at 5 times the normal rate with a risk in the most gross cases of a custodial sentence.

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