Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

A new report by Christian Aid claims that the lives are being lost to disease and poverty in poor countries because of illegal trade-related tax evasion.

It has calculated that this evasion costs the developing world at least US$160bn in lost revenue annually. Christian Aid says that companies using “false accounting” to reduce their tax liability are the culprits. 

If that money was allocated according to current spending patterns, the lives of 350,000 children under the age of five, 250,000 of them infants, could be saved every year.

Differing tax rates 

The sum is almost one and a half times the amount given as aid to the developing world every year. If the amount that is also lost through legal tax avoidance dodges were added, it would be many times greater.

Christian Aid’s figure of US $160 billion lost in tax revenues annually reflects the estimate of Raymond Baker, a senior fellow at the US Center for International Policy and guest scholar at the Brookings Institution, that 7 per cent of global trade involves the illicit movement of capital between countries by trans-national corporations (TNCs) and unrelated business entities.

The transfer of goods and services between parts of the same TNC are mispriced to take advantage of the differing tax rates in different countries and minimise profits where they are high.

Business accomplices in unrelated companies will issue false invoices to disguise the profits made in a transaction and reduce the tax liability.

Baker arrived at his figure through 550 interviews with heads of trading companies in 11 countries, all on condition of anonymity. Academic analysis of trade data suggests if anything a higher figure for mispricing.

By working out the sums involved, and the tax that would have been liable, Christian Aid estimated the implied impact on the infant mortality rates of poor countries.

Tax havens and big accounting firms 

Christian Aid’s report, Death and taxes: the true toll of tax dodging, looks at the impact of tax dodging, both legal and illegal, on the developing world.

It blames the secrecy offered by more than 70 tax havens for widespread abuses, and highlights the role of facilitators, including the big accountancy firms, in promoting their use.

Dr Daleep Mukarji, director of Christian Aid, said, “We predict that illegal, trade-related tax evasion alone will be responsible for the deaths of some 5.6m children under the age of five between 2000 and 2015. That’s almost 1,000 a day.”

He explained that these children, along with millions of other people, are victims of a financial system in which poor countries are routinely denied the tax that is rightly theirs by trans-national corporations and other businesses using methods both licit and illicit to lower their tax liability.

Christian Aid said that the revenue would enable governments of developing countries to work their own way out of poverty rather than just relying on aid and debt relief.

“The abuse is so widespread and damaging that it is tantamount to a new slavery. The rich are getting richer on the backs of some of the most impoverished and vulnerable communities in the world,” Dr Mukarji added.

Removal of secrecy

Prime Minister Gordon Brown last week called on global businesses to do more to help developing countries because the UN’s Millennium Development Goals, which are intended to halve poverty by 2015, show no sign of being met.

“The US$160bn lost tax revenues every year is several times greater than the US$40-60bn that the World Bank has estimated will be needed to meet the goals if policies and institutions in the developing world are improved,” added Dr Mukarji.

Christian Aid says that the British government has a particular responsibility for what is happening as nearly half the world’s tax havens are UK overseas territories, Crown dependencies and Commonwealth countries.

It is calling on the UK government to take an international lead in pressing for reform through the removal of the secrecy that tax havens offer.

Companies should also be compelled to publish their accounts on a country-by-country basis, which will mean that abusive practices can be quickly spotted.

Related articles

• Swiss minister in secrecy challenge
• Liechtenstein PM outlines tax reform
• HMRC defends steps against secret Liechtenstein accounts
• HMRC admits paying for stolen data
• Swiss bank obtains injunction against whistleblower site
• Swiss bankers apologise after Gestapo remark
• Germany and Liechtenstein in tax row
• Charities set to lose over £90m
• Regulator shames Scottish charities
• Good tax regimes no guarantee for competitiveness

Related links 

• Christian Aid
• Death and taxes: the true toll of tax dodging