Companies and investors based in G7 countries cheated Africa out of an estimated $US 6 billion in 2010 through just one form of tax dodging, according to a new Oxfam report "Money talks: Africa at the G7," released today ahead of this week’s G7 Summit in Germany.
Oxfam’s findings come as President Obama and the other G7 leaders prepare to meet their African counterparts to discuss how the G7 can support economic growth and sustainable development on the continent. The report highlights how G7 countries must get their own tax laws in better shape to prevent bad behavior by companies under their jurisdiction. Reforming corporate tax rules so that African governments can claim the money owed to their treasuries is critical if Africa is to tackle extreme poverty and inequality, and continue its economic rise.
“Africa is hemorrhaging billions of dollars because multinational companies, many with headquarters in G7 countries, are cheating Africa out of vital tax revenues,” said Winnie Byanyima, Oxfam International’s Executive Director. “If this tax revenue were invested in education and healthcare, societies and economies would further flourish across the continent.”
The common assumption that Africa loses money primarily because of bribery and corruption needs to be re-assessed. Tax avoidance tricks are allowing multinational companies to move considerable amounts of money out of Africa. Oxfam is calling for G7 leaders to put action for ambitious tax reform on the summit agenda. The international organization is urging G7 leaders to attend, or send their Finance Ministers to, the Financing for Development Conference in Ethiopia, in July. The Addis conference will set out how the world will finance development for the next two decades and is an opportunity for governments to start developing a more democratic and fairer global tax system.
In 2010, the last year for which data is available, companies and investors based in G7 countries avoided paying tax on US$20 billion of income through a practice called trade mispricing – where a company artificially sets the prices for goods or services sold between its subsidiaries to avoid taxation. With corporate tax rates averaging out at 28 percent in Africa this equates to nearly $US6 billion in lost tax revenues. Trade mispricing is just one of many ways multinational companies avoid paying their fair share of taxes. According to UNCTAD, developing countries as a whole lose an estimated US$100 billion every year through other tax avoidance schemes involving tax havens.
“G7 leaders must not be content to close tax loop holes at home, while letting multinational companies sidestep their tax obligations in Africa,” continued Byanyima. “The G7 must make Africa an equal partner in international efforts to reform the dysfunctional tax system. Only then will Africa be able to collect the tax revenues it is owed and which it desperately needs to overcome extreme poverty and inequality.”
Existing international efforts to tackle corporate tax dodging such as the BEPS (Base Erosion and Profit Shifting) process, led by the Organization for Economic Cooperation for the G20, have not done enough to tackle this issue and will leave gaping tax loopholes that multinational companies can continue to exploit across the developing world. Worse yet, many African nations have been shut out of discussions on BEPS reform and will not benefit from them as a result.