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Friday, 10 April 2009

False Profits: robbing the poor to keep the rich tax-free

Christian Aid's new extensively researched report with the above title provides more staggering evidence of the scale of illicit flows and the offshore system. It looks at trade mispricing, which can either happen within a multinational company (when it is called transfer mispricing) or in secret deals between unrelated companies.

Here is just one snippet, which will complement our page outlining the main measurements of the problem of global cross-border illicit flows and offshore wealth transfers:

"Between 2005 and 2007, the total amount of capital flow from bilateral trade mispricing into the EU and the US alone from non-EU countries is estimated conservatively at more than £581.4bn (€850.1bn, US$1.1tn). It breaks down specifically to £229.7bn (€335.8bn, US$441.2bn) into the EU countries and £351.7bn (€514.3bn, US$673.6bn) into the US. All conversion rates in this report are calculated at the average inter-bank rate for the year in question — the most accurate measure available.

If tax was levied on this capital at current rates, non-EU countries could have raised £190.8bn in revenue (€279.0bn, US$365.4bn) between 2005-2007, or £63.6bn (€93.0bn, US$121.8bn) per year."

The report uses data produced by the world trade pricing expert Simon Pak, president of the Trade Research Institute and associate professor at Penn State University in the US, who has advised US Congress on this issue.

Christian Aid adds, ominously:

"In spite of the enormous sums Professor Pak’s research exposes, they are just the tip of the iceberg. For he could only analyse publicly available trading data. Information held by tax havens, whose stock in trade is banking secrecy, would, if known, reveal a far more serious picture."

The report offers two main policy approaches.
  • Country-by-country reporting. A lack of this means that 60% of world trade disappears from view.

  • Automatic exchange of information between countries, with strong global rules to enable developing countries to determine whether they have been paid the right amount
    of tax, in the right place, at the right time. With sanctions for abusers.

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