Tax dodging
Tax dodging - who pays?
Tax is a key weapon in the fight against poverty. Taxes paid by companies and individuals enable governments to fund vital public services such as health care, education, clean water and electricity, and to finance anti-poverty programmes throughout the world. So when multinational corporations fail to pay the tax they owe, it's the poor who pick up the bill.
Yet companies now see tax dodging as a legitimate part of their business operations. And the cost is enormous. Developing countries lose an estimated £250 billion every year as a direct result of corporate tax dodging - money which could be used to reach the UN's Millennium Development Goals several times over. Tax avoidance and capital flight cost Africa five times what it receives in aid in each year.
And it's not just developing countries that lose out. Britain also loses an estimated £100 billion a year through tax dodging. That's enough to double funding for the NHS. Alternatively, the same sum could cover the full state pension, eradicate student fees and enable Britain to reach the UN aid target of 0.7% of gross national income overnight.
One popular way of dodging tax is to register companies in tax havens, locales that allow companies to get away with paying minimal tax, if any. Tax havens also place little or no reporting requirements on companies, allowing them to keep secret the true sums they should be paying in tax. This then denies vital revenue to the countries in which those companies have made their profits.
Another favourite method is trade mispricing, including through the mechanism of transfer pricing. Transfer pricing involves selling items between different parts of a multinational company and deliberately mispricing the sales so as to shift the company's tax obligations to countries where it will pay less. In this way companies have 'charged' themselves over £4,000 for a ballpoint pen and under £1 for an entire prefabricated building in order to dodge the tax they owe. Transfer pricing abuse costs developing countries around £100 billion a year - twice what they receive in aid.
| War on Want is a member of the Tax Justice Network, which promotes tax justice and tax cooperation and resists tax avoidance, tax evasion and tax competition. Visit the Tax Justice Network's external website to learn more. |
The UK plays a major role in helping companies dodge the tax they owe. Many of the world's tax havens are British, whether overseas territories such as the Cayman Islands, Bermuda and British Virgin Islands or Crown Dependencies such as Jersey, Guernsey and the Isle of Man.
The City of London acts as the nerve centre for these tax havens and supports an army of pinstriped lawyers and accountants devoted to helping companies dodge tax. But as these individuals rack up ever greater profits for their companies (and cash in their own Christmas bonuses) it is the poor who are left to pay the price.
War on Want believes it's time to put an end to this corporate tax scandal. And justice, like charity, begins at home. The UK is a major part of the global problem of corporate tax dodging. We believe it should be part of the solution.
