Taxing solutions: How tighter tax rules for big business could help end poverty?
Business and the MDGs: analysing the tax payments of 14 UK and US-based companies
The MDG Business Call to Action raises a vital development issue: how can companies, particularly large multinationals, best contribute to the fight against global poverty? One way is by ensuring that they pay the full amount of tax on profits intended by the relevant laws of each country in which they have substantial operations. Mulltinationals thereby add to public revenues that are desperately needed by developing countries to tackle hunger, provide health and education services and invest in infrastructure. In this context, a new report brought out by ActionAid examines the extent to which 14 UK and USA-based multinational companies that have signed up to the Call of Action pay the going rate of corporate tax on their profits in the countries where they or their subsidiaries operate.
Comparing the tax payments declared in the companies’ published accounts with the official rate of corporate tax in their home country from the last comparable five years, the report finds a shortfall of billions of pounds between the expected rate of tax and the actual tax paid. Specifically, it finds that:
- in most cases the tax paid over the last five years appears to be considerably less than the corporate tax rate in the companies’ home countries – which was 30% for UK companies and 35% for US companies at the time
- over that five-year period, there appears to be an estimated shortfall of $31.5 billion of taxed revenue, an average of $6.3 billion every year
- this represents a massive missed opportunity for governments to collect the financial resources needed to meet the MDGs: the UN, for instance, estimates that $22 billion is needed to fund a comprehensive global strategy of prevention, treatment and care to combat HIV/AIDS in 2008
The report concludes that there is an urgent need for the UK government to work with other governments, the United Nations, civil society and the companies themselves to explore the reasons why companies appear to be paying less tax than they should be paying, given their profits and the rates of corporate taxation in the countries where they are based. Greater accounting transparency and better mitigation of legal tax loopholes are identified as possible measures that will be necessary to prevent corporate tax avoidance from now on.
