AS the world grapples to find the cash to end poverty and battle climate change, African leaders at a global development summit being held in Ethiopia are pushing for rich multinational companies to stop dodging tax.
Tax avoidance by big companies—who employ accounting tricks to shift profits into countries where the taxman is more forgiving—costs Africa tens of billions of dollars in revenue every year.
This issue has now taken centre stage at a global development financing summit, which the United Nations hopes will pave the way for a fairer world of inclusive, low-carbon growth, set out in its 2015-2030 Sustainable Development Goals.
It also symbolises the North-South divide over the question of how to fairly fill the development financing gap, estimated at up to $2.5 trillion annually. Developing nations want their share of tax revenues, yet developed nations are keen to protect their business interests.
“Illicit money flows and tax evasion are costing Africa between $30-$60 billion a year. This is more than the total development aid,” said Senegal’s President Macky Sall.
“A strong international tax regime is crucial for eradicating poverty. We, therefore, look for agreement on tax in Addis,” added Kenyan President Uhuru Kenyatta, in his opening speech to the summit on Monday.
Developing nations, in the form of the 134-member G77 bloc, are lobbying hard for an end to multinationals’ profit-shifting, which the UN’s trade and development body UNCTAD says costs poorer countries some $100 billion a year.
“I call that a robbery. It’s a broken system that is allowing robbery of the poor countries by rich multinationals,” said Oxfam director Winnie Byanyima, whose aid agency has been campaigning for reform.
As an example, she said “the US Senate found that Caterpillar had almost 30 percent of its employees in Asia and Africa, made 30 percent of its sales in Asia and Africa—but recorded only one percent of its profit in Asia and Africa. Eighty percent of its profit went to a tax haven.”
“We must plug these loopholes.”
The solution being pushed by the G77 is the creation of a UN-managed intergovernmental body charged with overseeing a new set of global fiscal regulations, replacing the current set-up where such matters are managed by the Organisation for Economic Co-operation and Development (OECD), a so-called “rich man’s club”.
Another backer is the influential former chief economist at the World Bank and Nobel Laureate Joseph Stiglitz.
“Advanced countries have made commitments on (Overseas Development Aid) that they’re not fulfilling,” he told news agency AFP.
“But at least they shouldn’t be doing harm. At least if they’re not going to give money, let’s not undermine the ability of the developing and emerging markets to collect money that is rightly theirs.”
The OECD, however, has proposed its own solution, a project called Base Erosion and Profit Shifting (BEPS), and insists a new UN body is not needed.
“A UN tax committee will turn into a forum where countries will express views. What is for sure, is that nothing will happen,” argued Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration at the OECD.
“What the world needs badly is a set of agreed rules. In a UN tax committee with 200 countries with many tax haven jurisdictions and no dynamic, you cannot fix it.”
For Leonce Ndikumana, Professor of Economics at the University of Massachusetts at Amherst and a former African Development Bank director, the root of the problem is that development aid remains a strings-attached deal.
“When we talk about tied aid, it’s about getting access to the markets for national corporations. Governments in donor countries have the responsiblity to give more freedom to African countries to actually negotiate with the corporations without too much political pressure,” he said.