G7-based companies and investors cheated Africa out of an estimated $6billion (£3.9bn) in a year through just one form of tax dodging, according to a new Oxfam report 'Money talks: Africa at the G7', released today. This is equivalent to three times the amount needed to plug the healthcare funding gap in Ebola-affected countries of Sierra Leone, Liberia, Guinea and at-risk Guinea Bissau.
The report comes as G7 leaders prepare to meet their African counterparts at the annual summit in Germany. Oxfam is calling for G7 leaders to include action for ambitious tax reform in discussions about how the group can support economic growth and sustainable development on the continent.
In the UK, Oxfam is part of a coalition that has been calling on the new Government to show leadership by introducing a Tax Dodging Bill, which would make it harder for UK companies to avoid paying tax in the countries in which they operate - practices which currently cost some of the world's poorest countries billions each year. A well-crafted Tax Dodging Bill would also make it harder for big companies to avoid paying tax in the UK, and could bring in at least £3.6 billion a year to the UK Treasury, the equivalent of £600 for every household living below the poverty line.
Oxfam's Head of UK Campaigns Nick Bryer said: "Multinational companies, many with headquarters in the UK and other G7 countries, are cheating African countries out of billions of dollars in vital tax revenues that could help vulnerable people get decent healthcare and send their children to school. To fund the fight against poverty and to tackle worsening extreme inequality, we need action to ensure big companies pay their fair share, here and in the world's poorest nations."
An opinion poll last year found 78% of British adults want UK companies to pay their fair share of tax in developing countries in which they operate.
Oxfam is also calling for the Chancellor of the Exchequer, George Osborne to attend July's Financing for Development Conference in Ethiopia which will play host to heads of states and finance ministers from around the world. The talks, which will focus on how the international community will fund development over the next two decades, are an opportunity for governments to work together to start shaping 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 $20billion 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 in Africa averaging at 28% this equates to nearly US$6billion in lost revenues. In addition, developing countries as a whole lose around US$100billion a year through tax avoidance schemes involving tax havens, according to the UN Conference on Trade and
Bryer added, "Reforming global corporate tax rules so that African governments can claim the money owed to them is vital to tackle extreme poverty and inequality and boost economic growth. That's why Oxfam has been calling for a UK Tax Dodging Bill that would ensure UK companies do their bit to help poor families at home and in developing countries."
Notes to editors
A copy of the media brief 'Money Talks: Africa at the G7' is available from the press office.
The G7 annual meeting takes place in Bavaria, Germany on June 8-9. African leaders from Ethiopia (Prime Minister Hailemariam Desalegn), Liberia (President Ellen Johnson Sirleaf), Nigeria (President Muhammadu Buhari) and Senegal (President Macky Sall) will join an outreach session at the G7 on 8 June.
According to the UN's Economic Commission for Africa's Report on the High Level Panel on Illicit Financial Flows from Africa, there was a US$40 billion outflow from Africa due to trade mispricing in 2010. With corporate tax rates averaging out at 28% in Africa this equates to nearly US$11 billion in lost tax revenues. As companies and investors from G7 countries are responsible for more than half of the foreign direct investment in Sub-Saharan Africa, companies from G7 countries may be responsible for robbing African governments of
around US$6billion every year from just one tax trick alone.
Existing international efforts to tackle corporate tax dodging such as the BEPS (Base Erosion and Profit Shifting) process, led by the Organisation for Economic Cooperation (OECD) for the G20, will leave gaping tax loopholes that multinational companies can continue to exploit across the developing world. Many African nations have been shut out of discussions on BEPS reform and will not benefit from them as a result.
Developing countries lose an estimated US$100billion a year as a result of tax avoidance.
An estimated $1.7bn is required to close the healthcare funding gap to improve dangerously inadequate health systems in west Africa. This figure is based on raising spending to the WHO's recommended $86 per capita to achieve the minimum package of essential services: $419,108,763 for Sierra Leone, $278,663,928 for Liberia, $881,748,021 for Guinea and $131,753,794 for Guinea Bissau = $1,711,274,506 total. Oxfam's April 2015
briefing 'Never Again - building resilient health systems and learning from the Ebola crisis'.
The Tax Dodging Bill campaign is run by a coalition of organisations including Oxfam, ActionAid and Christian Aid. In the ComRes poll in November 2014, 85% of British adults said tax dodging was 'morally wrong, even if it is legal' and 78% of respondents said it was important to them that 'large UK companies pay their fair share of tax in developing countries in which they operate'