Dangerous Ideas in Development

Why are Aid Donors Frightened of Taxation?

John ChristensenDirector

taxNEWSPEAK: The art of obfuscation challenges to national sovereignty in an

era of transnational trade and investment

economic confusions role of tax incentives defining capital flight “tax efficiency” – a good thing, or bad?

legal confusions evasion v avoidance

don’t mess with corruption dirty deeds in secret places: romantic

notions about small islands, and the problem of case studies

Reasons to be fearful: part three

whose job is it anyway?

international tax cooperation is obscure and generally under-developed

an alphabet soup of international institutions and initiatives:

OECD / IMF / FATF / ECOSOC / UNCAC / ONODCP / FSF / IASB

there is no tax equivalent to the WTO – so who do we lobby? A global parliament? (Monbiot, The Guardian, 24 April 2007)

Companies and rich people exert a useful ‘discipline’ on high-tax high-spend governments: discuss

“Tax competition is the only agent of productivity for

governments – it is the only competition they

have.”

Jacques de Saussurepartnet, Pictet & Cie

Quoted in The Economist, 24 FEB 2007

legal barriers

duties of directors and professional advisers

much tax planning happens in the grey space between national legal systems

the legal basis for much tax avoidance could be overthrown by a general anti-avoidance principle

who can exert control over the tax havens?

economic confusions

if tax competition can be harmful (as the OECD tells us it can), in what circumstances can it be benign?

capital flight – poorly defined and under-researched

tax avoidance – a director’s duty? Or the trump card in the corporate social responsibility debate?

tax incidence – a contested area!!

confused thinking on corruption

flawed definitions plus biased perceptions result in a skewed geography

‘phase two’ of the corruption debate needs to focus on the Enablers

extreme tax – new agendas

Finance for Development – the Road to Doha

trade negotiations

debt relief

corporate responsibility and accountability

global governance

anti-corruption initiatives

www.taxjustice.net

taxNEWSPEAK – some examples

tax efficiency

proactive asset protection

tax advantaged products

mitigating tax risks

The ProblemThe deliberate and illicit disguised expatriation of money by those resident or taxable within the country of origin. Tax evasion is often the motive for capital flight.

Who owes what to whom?

Despite the massive debt incurred in the past, Sub-Saharan Africa is a net creditor to the rest of the world in the sense that external assets (i.e. the stock of flight capital) exceeds external liabilities (i.e. external debt).

The stock of capital flight from SSA (estimated at $274 billion including interest earnings) was equivalent to 145 per cent of the total debt owed by the countries in the mid-1990s.

Boyce, J.K. and Ndikumana, L. (2005)

“Tax is a cost of doing business so, naturally, a good manager will try to

manage this cost and the risks associated with it. This is an

essential part of good

corporate governance.”

Re-thinking corruption

Re-examine prevailing definition:the misuse of entrusted power for private gains -- to take account of all actions which undermine public confidence in the integrity of the systems of laws and institutions which structure economic and social transactions.

Country rank

Tax haven countries

2006 CPI score

5 Singapore 9.4

7 Switzerland 9.1

9 Netherlands 8.7

11 Luxembourg / UK 8.6

15 Hong Kong 8.3

16 Germany 8.0

18 Ireland 7.4

20 Belgium / USA 7.3

24 Barbados 6.7

26 Macau 6.6

28 Malta 6.4

31 U.A.E.(Bahrain/Dubai/RAS)

6.2

Country rank

African countries

2006 CPI score

156 Chad / DCR / Sudan

2.0

155 Cote d’Ivoire / Equatorial Guinea

2.1

142 Angola / Congo Kenya /Nigeria / Sierra Leone

2.2

138 Cameroon / Niger 2.3

130 Burundi / CAR / Ethiopia / Togo

2.4

the geography of corruptionTransparency International’s Corruption Perceptions Index: 2006