The Costs of Tax Avoidance and Evasion responding with a development focus

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
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.
30th May 2007
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.
fair and transparent
payment of tax is at
the heart of the
social contract
between business
and society
1998 – OECD report
2000 – Oxfam briefing paper
2002 – Florence meeting
2003 – TJN launched (March)
- first research workshop
2004 – International Secretariat
2005 – TJN-USA launched
- tax us if you can published
Marc Lopatin
No. 243, May 2004
2006 – formally constituted
2007 – TJN 4 Africa launched
- Closing the Floodgates published
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
 a vital element of
democratic Representation -
no taxation without
“ . . 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
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
Africa All Party Parliamentary Group
March 2006
The Floodgates: #1
Tax due on the shadow
(economic activity which
is not captured in
official statistics and
constitutes tax evasion).
Free download
The Floodgates: #2
Tax due on income
earned from assets
which are held offshore:
that is, by individuals
using tax havens.
The Floodgates: #3
Tax due on income earned by
multinationals and then
moved offshore without
paying appropriately (through
e.g. trade mis-pricing).
Africa’s revolving door
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
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
The Floodgates: #5
Tax due but not paid; a
potentially large leakage
where enforcement
mechanisms and
administration are underfunded, and/or penalties
for non-payment are small
and therefore tax
avoidance in all its forms
is rife
top quintile
receives 66.8%
of world
USD 10
bottom quintile
receives 2.2 % of
world income
USD 37
GDP at purchasing
power parity – total
is $55.6 trillion
SOURCE: 2006 World Bank World Development Indicators – data relates to 2004
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
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 &
• 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
“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.”
the quarterly newsletter of the tax justice network
December 2006
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
 tax dodging is a crime against society and
should be ranked as grand corruption because it
generally involves privileged elites
Sustainable development needs a
framework 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
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
Selected Tax Justice Campaigns
 Redefine corruption to 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
In summary:
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
25th June 2007
“. . 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.”
“taxes are what we pay for civilized society”
Judge Oliver Wendell Holmes, 1904
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