Thursday, July 22, 2010

Robin Hood in reverse

In the recent Budget, Overseas Aid was one budget that was left uncut. However you may be staggered to know that more money leaves poor countries than they receive in aid, investment or debt cancellation. The techie term is ‘illicit capital flight’ and the numbers are staggering. The European Network on Debt and Development puts the figure between $500 and $800 billion a year – one dollar from us to them, seven dollars back.

It leaves governments of poor countries without the means to pay for basic services, like clean water, primary schools and basic healthcare. Money also leaves poor countries through corruption and criminal activity - that probably accounts for about 40%.

But it’s the rest – the 60% of money flowing out of poor countries illicitly via tax dodging by unscrupulous businesses operating internationally.

Multinational companies are really good at finding new ways to make money – that's what they are there for. But some go to unethical, even illegal, lengths.

By reporting just a fraction of the profits they make in poorer countries, and hiding the true amounts offshore, these unscrupulous businesses reduce their tax bills – and cost the developing world billions.

However, the cloak of silence under which so many corporations are able to operate means billions of dollars leave developing countries without anyone noticing.

Some of the world’s largest and richest corporations are investing in some of the world’s poorest countries, reaping the benefits of world high prices in commodities, cheaper labour and access to raw materials. And yet poor countries aren’t sharing in the wealth and profits generated by these companies.

In just one form of tax dodging – trade mispricing – the Organisation for Economic Cooperation and Development (OECD), whose members are the world’s richest economies, puts the cost to the developing world at at least $100 billion.

To put a stop to tax dodging by unscrupulous multinational companies - there needs to be greater transparency about how much profit, and tax, multinational companies pay in the countries that they operate in. Christian Aid has started a campaign called “Trace the Tax” to raise awareness of the problem.

One way to do increase tax transparency this is to change accountancy laws to make country-by-country tax reporting a legal requirement.   Country-by-country tax reporting would mean that every company has to announce how much profit it makes, and how much tax it pays, in each country that it does business in. It would stop money being taken out of poor countries like Zambia and poured into rich tax havens such as Switzerland.

Greater transparency of companies’ tax payments will give poor country governments the ability to ensure companies pay what they owe. It will help them clamp down tax dodging. And greater tax revenue will mean more money to spend on basic services that will transform and even save people’s lives. There is:

Enough to reach the UN millennium development goals several times over.
Enough to save the lives of 350,000 children aged five or under every year.
Almost twice the amount poor countries receive in international aid.

Please add this campaign to your prayers.