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Africa Progress Panel condemns ‘unconscionable’ tax avoidance

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The G8 should establish the architecture for a multilateral regime that “tackles unethical tax avoidance” and closes down tax evasion, the Africa Progress Panel recommended on Friday. The panel, chaired by the former UN secretary-general Kofi Annan, said there was compelling evidence of “systemic under-taxation” in resource-rich African countries.

There were “strong grounds” for all resource-rich countries to strengthen their tax systems by removing concessions and “responding to real market conditions”, the panel said. But in some cases  mining companies had “resolutely opposed reform”.

The Africa Progress Report noted that tax avoidance had emerged as “a global concern”. Some tax professionals have argued that where multinationals use low-tax jurisdictions legally to minimise their global tax bills, they are not engaging in tax avoidance. A recent HMRC briefing explained that a company paying less UK corporation tax than might be expected is not necessarily engaging in tax avoidance.

However, in his recent book The Great Tax Robbery Richard Brooks argued that what he called the “official view” was at odds with a “more realistic” public understanding of tax avoidance, which includes action to exploit “fault lines” in the system.

While public anger in Europe and North America had been directed towards “highly visible multi-billion dollar firms that minimise their tax liabilities through sophisticated but aggressive tax planning”, the report pointed out that resource-rich countries in Africa were “highly vulnerable to aggressive tax planning and tax evasion facilitated by the extensive use of offshore companies, the high levels of intra-company trade and the commercial secrecy surrounding foreign investment activity”.

The panel said African governments were losing significant revenue streams because they lacked the resources needed to secure compliance and “the commercial market intelligence needed to assess company tax liabilities”.

It added: “International tax avoidance and evasion, corruption, and weak governance represent major challenges. The report therefore welcomes the commitment from the current G8 presidency, the UK, and other governments to put tax and transparency at the heart of this year’s dialogue. It urges all OECD countries to recognize the cost of inaction in this vital area.

“Africa loses twice as much in illicit financial outflows as it receives in international aid. The Africa Progress Panel finds it unconscionable that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximize their profits, while millions of Africans go without adequate nutrition, health and education.”

Annan said: “Tax avoidance and evasion are global issues that affect us all. The impact for G8 governments is a loss of revenue. But in Africa, it has direct impact on the lives of mothers and children. Throughout the world, millions of citizens now need their leaders to step up to the mark and lead. Fortunately, momentum for change appears to be accelerating.”

The panel’s named donors include the UK’s Department for International Development. “Partner organisations” include the OECD, the World Economic Forum and the World Bank.

“Tax havens should end,” said a strongly-worded editorial in yesterday’s Observer, responding to the report and agreement among G7 finance leaders at the weekend on “the importance of collective action to tackle tax avoidance and evasion”.

The editorial said: “Political will, co-ordinated international action, more public education and tax systems that work for all might give Africa a fresh beginning. We also need to create a new moral consensus that says those companies and individuals who pocket obscene amounts of wealth without paying their civic dues should be denied our custom and treated instead as the freeloading pariahs they are.”

Paul Collier, a professor at Oxford University who has advised the UK government on the G8 agenda, said in an article in today’s Financial Times: “Intra-company transactions have been unsupervised and so became the vehicle for tax avoidance.”

Collier added: “Beneficial ownership of shell companies has been kept secret and so became the vehicle for laundering bribes. If Africa is to harness the coming decade of extraction to finance its development these practices must now be ended. Britain’s G8 summit next month aims to do just that.”