Confronting Tax Havens and Inequality

1. 23rd July 2007, United Nations side event to ECOSOC Tax Avoidance and Tax Evasion as an Impediment to Development John Christensen Director, TJN International Secretariat

2. Financial Times - 26 September 2003 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. “ 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. ” 30th May 2007

3. Financial Times - 26 September 2003 “ fair and transparent payment of tax is at the heart of the social contract between business and society Marc Lopatin No. 243, May 2004 TimeLine 1998 – OECD report 2000 – Oxfam briefing paper 2002 – Florence meeting 2003 – TJN launched (March) - first research workshop 2004 – International Secretariat created 2005 – TJN-USA launched - tax us if you can published 2006 – formally constituted 2007 – TJN 4 Africa launched - Closing the Floodgates published ”

4. Financial Times - 26 September 2003 The Four Rs of Taxation • a source of Revenue • a means of wealth and income Redistribution • a tool for Repricing goods and services for policy purposes • a vital element of democratic Representation - no taxation without representation “ . . on the tax front, first items in the agenda would be strengthening anti-tax evasion programs and addressing the existing high levels of exemptions.” February 2006

5. “ Corruption’s impact is greater because of the tendency of the proceeds to be banked overseas. Corruption can reduce tax revenues by as much as 50 per cent reducing the funds available to government for public spending. Africa All Party Parliamentary Group March 2006 ”

6. The Floodgates: #1 Tax due on the shadow economy (economic activity which is not captured in official statistics and constitutes tax evasion). Free download

7. The Floodgates: #2 Tax due on income earned from assets which are held offshore: that is, by individuals using tax havens.

8. The Floodgates: #3 Tax due on income earned by multinationals and then moved offshore without paying appropriately (through e.g. trade mis-pricing).

9. trade mis-pricing 60 per cent of trade transactions into or out of Africa are estimated to be mis-priced by an average exceeding 11 per cent, resulting in a capital flight component of 7 per cent of African trade, totalling US$10 to 11 billion annually (1999 prices) Baker, R. (2005) Capitalism’s Achilles Heel The incidence of trade mis-pricing to achieve capital flight out of Africa has accelerated significantly. A study of import and export transactions between Africa and the United States found that between 1996 and 2005 net capital outflows to the US grew from $1.9 billion to $4.9 billion (+257%) through the use of low-priced exports and high-priced imports. Pak, S.J. (2006) Estimates of Capital Movements from African countries to the United States through trade mispricing Africa’s revolving door

10. The Floodgates: #4 Tax that would have been received had not rates been diminished by the need to offer fiscal incentives to attract foreign investment. Estimated by Oxfam to cost developing countries $35 billion annually

11. The Floodgates: #5 Tax due but not paid; a potentially large leakage where enforcement mechanisms and administration are under-funded, and/or penalties for non-payment are small and therefore tax avoidance in all its forms is rife

12. top quintile receives 66.8% of world income bottom quintile receives 2.2 % of world income GDP at purchasing power parity – total is $55.6 trillion SOURCE: 2006 World Bank World Development Indicators – data relates to 2004

13. It may sound like heresy to some ears but a degree of redistribution would be good for growth. • Financial Times • editorial comment • 15 February 2006 “ ”

14. Wrecking Opportunities for Mobilising Domestic Resources – direct impacts • 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

15. “In practice, the ability of some businesses to exploit loopholes for tax arbitrage purposes, and to exert their political influence to secure unnecessary tax breaks in the name of ‘tax competition’ , has undermined the theory of comparative advantage that lies at the heart of world trade and investment theory.” TAX JUSTICE FOCUS the quarterly newsletter of the tax justice network December 2006

16. Wrecking Opportunities for Mobilising Domestic Resources – further impacts • 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

17. Sustainable development needs aframework for retaining domestic resources and raising tax revenues on an equitable basis In March 2002 the International Conference on Financing for Development (the Monterrey Consensus) called on developing countries to mobilise their domestic resources for development. This was reaffirmed at a high-level meeting of UN ECOSOC, UNCTAD, the World Bank, the International Monetary Fund and the World Trade Organisation In 2005 the final communiqué of the World Summit in New York “resolved to support efforts to reduce capital flight.” Progress towards achieving the Monterrey Consensus will be reviewed at a global summit in Doha, Autumn 2008

18. A Tax Justice Agenda • 19 recommendations for national or regional level • 4 key recommendations for global measures • 10 recommendations for support for developing country tax administrations • 23 research proposals

19. Selected Tax Justice Campaigns • Redefine corruptionto include the supply of ‘corruption services’ that enable those seeking to evade and avoid tax and to arrange capital flight both onshore and offshore; • Support the call to the International Accounting Standards Board for an International Financial Reporting Standard requiring country-by-country reporting of trading activities and tax paid by multinational corporations; • Encourage the creation of Codes of Conduct for the management of domestic taxation to which the government, tax intermediaries and taxpayers can subscribe as indication of a commitment to tax compliance;

20. Financial Times - 26 September 2003 • A world in which a global plutocratic class pays little or no tax, while benefitting from the stability generated by taxes imposed on the ‘little people’, will prove unsustainable. • Editorial • 25th June 2007 In summary: “. . only if tax loopholes are plugged and tax evasion drastically reduced in the countries of the South can the Millenium Development Goals still be achieved.” “ ”

21. “taxes are what we pay for civilized society” Judge Oliver Wendell Holmes, 1904 www.taxjustice.net info@taxjustice.net