Africa/Global: New Reports Show Massive Tax Losses
AfricaFocus Bulletin
April 17, 2017 (170417)
(Reposted from sources cited below)
Editor's Note
On April 15, "tax day" in the United States, tens of thousands of
demonstrators in over 200 communities around the country marched to
demand that President Trump make public his tax returns (
http://taxmarch.org/home/). Protesters also denounced his use of
taxpayer funds for his personal profit and military escalation while
his administration continues its assault on spending for urgent
public needs at home and around the world. There is no sign that the
President will comply with the demand for transparency. But the
award of a Pulitzer Prize last week to the international consortium
that exposed the Panama Papers was only one indicator that the drive
to expose tax evasion, tax avoidance, and corruption around the
world will continue.
One new report, from the Tax Justice Network, estimated that global
tax losses by governments to "profit-shifting" come to at least $500
billion a year, while another report from Oxfam America cited $1.6
trillion stashed overseas by the 50 largest U.S. companies alone for
the purposes of reducing their U.S. taxes. And Shell Oil was forced
to admit having paid a $1.1 billion bribe to a former oil minister
in Nigeria to facilitate the award of the rich Malabu oil block.
This AfricaFocus Bulletin contains brief press releases on these
three reports, as well as on new legislation introduced by Democrats
in the U.S. Congress that would limit such abuses, particularly by
requiring "multinational corporations to report their employees,
sales, finances, tax obligations and tax payments on a country-bycountry
basis." As the Oxfam report and other critics have noted,
Trump's so-called "tax reform" plans would instead massively reduce
transparency and allow corporations and the ultra-rich to grab even
larger shares of national wealth.
Additional links of interest:
CBS News, "Secret Service costs for Trump family protection continue
to mount," April 14, 2017 http://tinyurl.com/n7ftvpd
"One purchase order reviewed by CBS News shows the US Secret Service
has spent $35,185 on golf cart rentals [to Trump's resort] in Palm
Beach County, Florida since the President’s inauguration."
"Civil Society Experts Issue Accelerated Agenda for Addressing
Illicit Financial Flows in Africa,"
January 26, 2017, press release with link to 10-page full report. http://tinyurl.com/kqznhqd
"The Accelerated IFF Agenda is a set of 14 recommendations that
identify steps African governments can take to jump-start the
process of addressing illicit financial flows (IFFs)."
Financial Accountability and Corporate Transparency (FACT) Coalition https://thefactcoalition.org/
"a non-partisan alliance of more than 100 state, national, and
international organizations working toward a fair tax system"
Essential up-to-date resources on U.S. legislative issues and other
policy and advocacy efforts.
[note story at link includes additional graphics, short video, and
link to full report]
BBC News, April 11, 2017, "Shell admits dealing with money
launderer"
Emails show senior executives at world's fifth largest company
knowingly took part in a vast bribery scheme that robbed the
Nigerian people of $1.1 billion.
It's one of the biggest corruption scandals in the history of the
oil sector – and this is the biggest development so far.
Damning new evidence shows oil giant Shell took part in a vast
bribery scheme that robbed the Nigerian people of over a billion
dollars.
Internal Shell emails seen by Finance Uncovered and Global Witness
show how the world's fifth biggest company took part in a scheme
which deprived Nigeria and its people of $1.1 billion in a murky
deal for access to one of Africa's most valuable oil blocks, known
as OPL 245.
For years, Shell has denied it did anything wrong, but today's
emails show they knew the money would be diverted to private hands,
and they went ahead with the deal anyway.
This is devastating for the people of Nigeria. Right now five
million of them face starvation. The money paid for the block
equates to one and a half times what the UN says is needed to
respond to the current famine crisis. But the Nigerian people saw
none of the benefits.
What the Leaked Emails Show
The emails we have published today show senior executives knew the
massive payment for the oil block would go to Dan Etete – a
convicted money launderer and former Nigerian oil minister. He spent
some of it on a private jet, armoured cars, and shotguns.
The emails also show Shell's top brass were told that money was
likely to flow to some of the most powerful people in the country,
including then President Goodluck Jonathan.
He spoke to Mrs E this morning. She says E claims he will only get
300m we offering—rest goes in paying people off. (Shell
representative and former MI6 agent John Copleston in a leaked email
to Shell Africa executives. “E” is understood to be Dan Etete.)
Shell portrays itself as an oil company that does good. Yet our
investigation reveals a story of hypocrisy and deception, and finds
the company's most senior bosses depriving Nigeria of life-saving
funds by going ahead with a dodgy deal that they knew was a vast
bribery scheme.
Background: The OPL 245 Deal
In 2011, Shell and the Italian oil company Eni paid $1.1. billion in
a murky deal for this lucrative asset located off the coast of
Nigeria. After a lengthy investigation, Global Witness tracked down
documents showing that this money didn't go to benefit the Nigerian
people as it should have done. Instead it went to convicted money
launderer and former oil Minister, Dan Etete, who had awarded
himself ownership of the block in 1998 via a company he secretly
owned, Malabu Oil and Gas.
For six years, Shell has denied it did anything wrong, and said it
only dealt with the Nigerian government in securing rights to the
block. This latest investigation shows that Shell's senior
executives knew where the money was really going.
Top 50 US Companies Stash $1.6 Trillion Offshore
Current "Reform" Proposals Likely to Make Tax Dodging Even Worse
The 50 biggest US companies, including global brands such as Pfizer,
Goldman Sachs, GE, Chevron, Walmart, and Apple, have $1.6 trillion
stashed offshore according to Oxfam America, a $200 billion increase
in a single year.
In a new report based on corporate financial, lobbying, and investor
disclosures released ahead of Tax Day, Oxfam revealed that the 50
largest US companies relied on an opaque and secretive network of at
least 1,751 subsidiaries in tax havens to avoid paying their fair
share of taxes. Oxfam also warned that reforms proposed by President
Trump and Congressional leaders will only further rig the rules in
favor of the rich and powerful, deepen the inequality crisis, and
harm poor families in the US and in developing countries worldwide.
"As Americans prepare for the yearly ritual of filing their returns
and sending Uncle Sam a check, the 50 largest US companies are
hoarding more than a trillion dollars offshore that could provide
much-needed funds to fight poverty and inequality here and around
the world," said Robbie Silverman, Senior Advisor for Oxfam America
and one of the authors of the report. "While President Trump was
elected on the promise to fix the rigged political and economic
system, his proposals will only enrich powerful corporations and
enable special interests to game the tax code at the expense of
ordinary taxpayers and small businesses."
The report, which updates Oxfam's analysis from a similar report
last year, reveals that the 50 largest US companies have deepened
their use of tax havens and boosted their investments in building
political influence to push for even greater tax breaks than they
already enjoy. Even as these 50 companies earned over $4.2 trillion
in profits globally, they used offshore tax havens to lower their
effective overall tax rate to just 25.9% according to the most
generous estimate of their tax payments, well below the statutory
rate of 35% and even below average levels paid in other developed
countries. Since 2009, these 50 companies alone have spent $2.5
billion in federal lobbying--almost $50 million for every member of
Congress. Oxfam estimates that for every $1 these companies spent
lobbying on tax issues, they received an estimated $1,200 in tax
breaks.
"Every year rigged tax rules cost Americans approximately $135
billion in corporate tax dodging and sap an estimated $100 billion
from poor countries--revenue that should go towards building
schools, bridges and hospitals," continued Silverman. "The losers in
this rigged game are small businesses, working families, and the
poor who cannot deploy armies of lobbyists to preserve their
favorite tax loophole."
The report does not accuse any of the companies of acting
illegally--rather, Oxfam's analysis demonstrates how the current tax
system permits companies to dodge hundreds of billions of dollars of
tax within the bounds of the law.
Instead of supporting straightforward reforms to prevent large
companies from gaming the system, President Trump and leaders in
Congress are pitching "reform" that would provide massive tax breaks
to US companies that have trillions stashed offshore, give giant new
tax breaks to large, profitable companies, and dramatically reshape
the way US companies are taxed with terrible implications for poor
countries.
Oxfam estimates that the top 50 US companies would stand to gain
between $312-327 billion from the repatriation holidays proposed by
President Trump and the House GOP. Just 4 companies--Apple, Pfizer,
Microsoft and General Electric--together could potentially pocket as
much as $132 billion in new tax breaks from this single policy
change.
The report also reveals that the Border Adjustment Tax, proposed by
the House GOP, will harm poor and middle class Americans and could
cost poor countries more than what the US spends on poverty-focused
foreign aid. As a direct result of this proposal, poor countries
could face rapidly increasing costs in servicing their debts, which
would drain resources needed for schools, hospitals and other basic
services that help pull their citizens out of poverty.
The tax reform plans, which will cost the US trillions of dollars
over the next decade, must also be considered and understood in the
context of the Trump Administration's proposals to dramatically
slash the federal budget, in part to help pay for tax cuts for the
wealthy. President Trump's budget would severely cut or abolish
programs that provide low-income Americans with affordable housing,
job training, energy assistance, rehabilitated homes in
neighborhoods hard-hit by foreclosures, and food delivery to
homebound seniors. At a time of unprecedented global crisis, with 65
million people forced to flee their homes and up to four famines
looming, the cuts would also devastate US leadership to save lives
and help the world's poorest and most vulnerable.
Oxfam calls on Congress to go back to the drawing board on its tax
reform plans and start over with measures that do not further
entrench the inequality crisis. Congress must also work to enable
cooperation with other countries that are struggling to prevent tax
abuse rather than compete with other nations in a mutually
destructive race to the bottom. The Corporate Tax Dodging Prevention
Act and the Stop Tax Haven Abuse Act are just two reasonable
measures that would simplify the tax code and ensure companies pay
their fair share.
"A fair and effective tax system is the lifeblood of an efficient
and well-functioning government, allowing for investments in basic
services like schools, hospitals, roads, first responders, social
safety nets and other vital public services that can address poverty
and ensure a thriving business climate," said Silverman. "The vast
sums that companies have stashed in tax havens should be fighting
poverty and rebuilding America's infrastructure, not hidden in
Panama, Bahamas, or the Cayman Islands."
Editor's notes: The Oxfam report analyzed the tax practices between
2009-2015 of the 50 largest public companies in the US according to
the Forbes 2000 list: Allergan, Alphabet (Google), American Express,
American International Group (AIG), Amgen, Apple, AT&T, Bank of
America, Berkshire Hathaway, Boeing, Capital One Financial, Chevron,
Cisco Systems, Citigroup, Coca-Cola, Comcast, CVS Health, Dow
Chemical, Exxon Mobil, Ford Motor, General Electric, General Motors,
Gilead, Goldman Sachs, Home Depot, Honeywell International, IBM,
Intel, Johnson & Johnson, JPMorgan Chase, Medtronic, Merck, MetLife,
Microsoft, Mondelez, Morgan Stanley, Oracle, PepsiCo, Pfizer,
Phillips 66, Procter & Gamble, Prudential Financial, United
Technologies, UnitedHealth Group, US Bancorp, Verizon
Communications, Walgreens, Wal-Mart, Walt Disney, and Wells Fargo.
New estimates reveals the extent of tax avoidance by multinationals
Global tax losses estimated at $500 billion a year
Losses account for a higher share of GDP in lower-income countries
Losses in some countries such as Zambia and Argentina exceeded 4%
of GDP
Biggest dollar losses in the USA, estimated at $190 billion in
2013
New figures published today by the Tax Justice Network provide a
country-level breakdown of the estimated tax losses to profit
shifting by multinational companies. Applying a methodology
developed by researchers at the International Monetary Fund to an
improved dataset, the results indicate global losses of around $500
billion a year. The figures appear in a study published today by the
United Nations University World Institute for Development Economics
Research (UNU-WIDER, in Helsinki). Full study available at
https://www.wider.unu.edu/node/74539
While this global total is more cautious than the $600 billion
estimate of the IMF researchers, the distribution is also different.
Losses are now estimated to be even more intense in lower-income
countries in relation to GDP and as a proportion of total tax
revenues. In addition, today's estimates include the full country
breakdown.
Profit shifting is the process whereby companies move profits from
their subsidiaries in higher tax countries, where the real economic
activity takes place, to other subsidiaries in 'tax havens'. This is
typically achieved by the multinational company setting up internal
trades which exploit international tax rules to move taxable profits
from one jurisdiction to another.
Profit shifting has been a big focus of international attention
since scandals at companies like Apple and Amazon revealed the scale
of distortions - and the systemic nature of
avoidance schemes marketed by big 4 accounting firms was then laid
bare in the 'LuxLeaks' revelations.
Tax Justice Network chief executive, Alex Cobham and Petr Janský of
Charles University in Prague, carried out the analysis which
recreates the methodology of a study published by researchers at the
International Monetary Fund in 2016. Cobham and Janský replicate the
IMF analysis, and then repeat it using a more robust source of
national tax revenue data.
The data showed that whilst the largest losses occurred in rich
economies such as the United States, lower-income countries were the
biggest victims of profit shifting. Some countries, such as
Argentina (4.42%) lost a significant proportion of their GDP to
profit shifting. In Chad, the estimated losses to profit shifting
were larger than all of the (non-resource) taxes collected in the
country that year. In Pakistan the losses were 40% of tax revenues.
While any estimates of this deliberately hidden phenomenon are
necessarily uncertain, the order of magnitude indicates that the
economic development of countries may in some cases be significantly
undermined by the activities of multinational companies.
The calculated losses to individual countries can be seen in this
interactive global map: goo.gl/vZiWjj
[Note by AfricaFocus editor: The data by country in the spreadsheet
includes 146 countries, excluding Russia and many countries in the
Middle East. The largest amounts of tax losses are from the United
States ($189 billion) and China ($67 billion), but most countries
with a large percentage of losses compared to the GDP are in Africa
(24 countries) or other developing areas (16 countries).]
On the publication of the report Alex Cobham, chief executive of the
Tax Justice Network said:
These findings support the long-held view that it is lower-income
countries that suffer the most intensive losses due to tax dodging
by multinational companies. The current status quo, in which
international tax rules are set at the OECD where lower-income
countries lack any effective voice, is simply untenable.
Now we need political progress to challenge profit shifting.
Governments around the world can legislate today for the publication
of multinational companies' country-by-country reporting - revealing
the precise pattern of profit shifting to citizens, and giving tax
authorities the power to curtail it.
...
Two New Bills Would Plug Major Loopholes in Our Offshore Corporate
Tax System
By Richard Phillips, Senior Policy Analyst at Institute on Taxation
and Economic Policy (http://www.itepnet.org/)
A new pair of bills introduced by Representative Lloyd Doggett (DTX)
this week would crack down on loopholes that allow corporations
and individuals to avoid paying their fair share in taxes.
Rep. Doggett's Stop Tax Haven Abuse Act, which was sponsored by
Senator Sheldon Whitehouse (D-RI) in the Senate, would close a
number of the most harmful loopholes in the current international
tax code. Taken together, the provisions of the bill would reduce
international tax avoidance by $278 billion over 10 years.
Corporations' use of offshore tax gimmicks have grown so out of
control that companies have now accumulated a stunning $2.6 trillion
hoard of money offshore for tax avoidance purposes. The bill
wouldn't entirely solve the problem of tax haven abuse, but it could
ensure corporations are paying part of the estimated $100 billion
they avoid each year in taxes. Some of the key components of the
bill include provisions that would:
Reduce corporate inversions by treating the corporation resulting
from the merger of a U.S. and foreign company as a domestic
corporation if shareholders of the original U.S. corporation own
more than 50 percent (rather than 20 percent under current rules) of
the new company, or if the company continues to be managed and
controlled in the United States and engaged in significant domestic
business activities (meaning it employs more than 25 percent of its
workforce in the United States).
Disallow the interest deduction for U.S. subsidiaries that have
been loaded up with a disproportionate amount of the debt of the
entire multinational corporation. This provision would curb socalled
"earnings stripping," a practice in which a U.S. subsidiary
borrows from and makes large interest payments to a foreign
subsidiary of the same corporation to wipe out U.S. income for tax
purposes.
Require multinational corporations to report their employees,
sales, finances, tax obligations and tax payments on a country-bycountry
basis as part of their Securities and Exchange Commission
(SEC) filings. Such disclosures would provide crucial insights into
how companies are gaming the international tax system and would
provide more transparency to investors.
Repeal the "check-the-box" rule and the "CFC look-through rules"
that allow companies to shift profits to tax havens by letting them
tell foreign countries that their profits are earned in a tax haven,
while telling the United States that the tax-haven subsidiaries do
not exist.
Rep. Doggett's other new tax-related bill, the Corporate EXIT
Fairness Act, takes direct aim at one of the main drivers of
corporate inversions. Under the current tax code, companies have a
huge incentive to invert or become a foreign corporation (at least
on paper) because they can permanently avoid paying taxes on
accumulated offshore earnings. Doggett's legislation would require
inverted companies to pay the full amount of taxes they owe on
offshore earnings if they become a foreign company, which means that
avoiding taxes on unrepatriated earnings will no longer be a factor
in making that decision.
The bill also contains the same anti-inversion provisions in the
Stop Tax Haven Abuse Act that tighten rules around what constitutes
a domestic corporation.
What differentiates Rep. Doggett's exit tax bill from similar bills
is that it would require all expatriating companies to pay what they
owe on their offshore earnings, rather than just those companies
that are engaging in a transaction that meets the definition of an
inversion. This makes the bill even more effective in that it
reduces the offshoring tax incentive across the board and allows the
bill to work as a complement to other anti-inversion legislation.
Rather than moving to an even more loophole-ridden corporate tax
code as the House GOP has proposed, lawmakers should be considering
reforms such as those in the Stop Tax Haven Abuse Act and the
Corporate EXIT Fairness Act that crack down on offshore tax
avoidance.
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providing reposted commentary and analysis on African issues, with a
particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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