23rd October 2009, UNLEASHING ECONOMIC POTENTIALS. COPENHAGEN
ENDING TAX EVASION AND ILLICIT FINANCIAL FLOWS
John ChristensenDirector, International Secretariat
For each dollar of aid that goes into Africa, at least five dollars flows out under the table. The time has come to confront the tax haven monster.
“
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Dirty Money Flows Distort Our EconomyAnd Corrupt Democracy
30th May 2007
“Any survey of the
main uses of offshore
funds would have to
conclude that low tax
is not the main benefit
at all; the real
attraction is their total
confidentiality. This
makes them perfect
places to lodge capital
in flight from tax,
politics or the law.”
Financial Times
18 January1997
Mission Statement
In an era of globalisation, the
Tax Justice Network is
committed to a socially just,
democratic and progressive
system of taxation.
TJN campaigns from an
internationalist perspective for
a tax system which is
favourable for poor people in
developing and developed
countries, and finances public
goods and taxes harmful
activities which pollute and
cause unacceptable inequality.
The economic
transformationSince the 1970s:
exchange controls have been
eliminated
trade tariffs and taxes have been
significantly reduced
there has been a massive expansion of
cross border trade and investment
increased income from foreign sources
capital mobility now virtually
unimpeded
the number of secrecy jurisdictions has
tripled since the 1970s
In 2006 developing countries lost an estimated US$858.6 billion - $1.06 trillion in illicit financial flows. Between 2002 and 2006 the volume of illicit financial flows increased by 18.2 per cent: the situation is deteriorating
Illicit financial flows include the proceeds from both illicit activities such as bribery and embezzlement, criminal activity, and the proceeds of licit business which become illicit when shifted across borders in contravention to applicable laws and regulatory frameworks (most commonly for tax evasion purposes)
Real capital flight over the 35-year period amounted to about $420 billion (in 2004 dollars) for the 40 Sub-Saharan African countries as a whole. Including imputed interest earnings, the accumulated stock of capital flight was about $607 billion as of end-2004.
Their net external assets (accumulated flight capital minus accumulated external debt) amounted to approximately $398 billion over the 35-year period.
• loss of revenue for public expenditure programmes• increased reliance on external debt• need to offer incentives to foreign investors• conditions imposed by aid donors
• reduces investment in public goods – education, training, physical infrastructure, research & development
• switch of tax burden between factors of production• worsens inequality• raises cost of labour relative to capital• reduces consumption of domestic produce and increases imports of luxury goods and services
• creates micro-economic distortions• the free-rider phenomenon• corporate responsibility begins with paying tax
Wrecking Opportunities for Mobilising Domestic Resources – direct impacts
“Aggressive tax avoidance is a serious cancer eating into the fiscal base of many countries”
Pravin GordhamFinance MinisterSouth Africa, 2009
greatly increases tax administration costs
threatens the viability of weaker states, and increases reliance on external players – this has an entirely negative impact on democracy building
tax dodging undermines public confidence in the rule of law and the integrity of public systems, institutions and rules. It should be classified as a predicate crime under the UN Convention Against Corruption
tax dodging is a crime against society and should be ranked as grand corruption because it generally involves privileged elites
Wrecking Opportunities for Mobilising Domestic Resources – further impactsUS$160 billion
€110 billion
The estimated annual cost to the people of developing countries of tax evasion by multinational companies
The expanding credit crisis has helped
underline the dangers of a lack of transparency
in international finance, poor regulation and
insufficient cooperation . . Yet the world risks
wasting political capital on the wrong targets.
We are pursuing the timorous policies of a past
age to tackle tax havens.
Comment: Stop this timidity in ending tax
haven abuseJohn Christensen and David Spencer, 5th March
2008
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Replace the OECD black/grey/white list with TJN’s Financial Secrecy Index (to be published 1st November)
Adopt automatic information exchange as a multilateral standard, and sanction non-cooperative jurisdictions
Adopt an International Financial Reporting Standard on country-by-country reporting
Require full public disclosure of beneficial ownership of trusts, companies, foundations and similar legal entities
Adopt a General Anti-Avoidance Provision accompanied by purposive legislation
Strengthening transparency and governance “We should endorse sharing information and bringing tax havens and non-cooperating jurisdictions under closer scrutiny”
Manmohan SinghPrime Minister of India, 2009
Strengthen international cooperation with a primary objective of ensuring that national tax systems do not have negative external impacts on tax sovereignty elsewhere (UN Tax Committee proposals under Monterrey Consensus)
Define tax evasion as a corrupt activity within the scope of the UN Convention Against Corruption, and as a predicate crime under AML regimes
Negotiate a multilateral framework to allow states to tax multinationals on a global unitary basis (using formulary apportionment) with appropriate mechanisms to allocate tax revenues across borders
Enhanced global cooperation“Action by the international community is required to ensure that the potential tax base of developing countries is not undermined through tax evasion”
African Tax Administrator’s Forum, Pretoria, South Africa, 2008
more info: taxjustice.net
taxjustice.blogspot.com
taxresearch.org.uk/blog
contact: [email protected]
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