Death and taxes: the true toll of tax dodging

This report discusses the global taxation system that allows corporates to avoid their responsibilities while condemning the poorest to stunted development, even premature death. It argues that tax avoidance is a grey area. Although it is legal, it has a sliding scale of legitimacy. In the corporate world, avoidance often involves the use of tax havens to shelter and boost profits. Increasingly more ingenious and complex instruments are peddled by the tax industry, with the sole purpose of getting around laws and regulations. The report examines the different methods, licit and illicit, through which transnational corporations and other businesses dodge tax in order to pay as little as possible.

The authors note that loss of corporate tax to the developing world due to tax evasion through some of the common forms of evasion is currently running at US$160bn a year (£80bn). That is more than one-and-a-half times the combined aid budgets of the whole rich world – US$103.7bn in 2007. The report argues that the lives and prospects for poor people in the developing world could be transformed if the same proportion of tax revenues were spent on healthcare in these countries, the lives of 350,000 children under the age of five would be saved every year – including 250,000 babies.

Projections reveal that between 2000, when the MDGs were set, and 2015 when they are supposed to be realised, the amount lost by two specific methods of evasion will total US$2.5 trillion. Taking into account additional sums from aggressive tax avoidance and other forms of trade abuse, the total loss is likely to be several times that amount.

The report makes following recommendations, particularly to governments of UK and Ireland as most of the illicit money finds its way into these countries.

• Both governments should commission their own studies into the scale of illicit capital flows in general and of those due to tax evasion in particular, with a special emphasis on the role played by their own jurisdictions and institutions in facilitating capital flight and tax evasion from the developing world.
• Promote an international accounting standard that requires companies to report what they do on a country-by-country basis.
• Repatriate illicit wealth
• Ensure banks to disclose the ownership of all foreign entities to which they supply services so that this information might be exchanged with the countries in question.
• Support the OECD in its efforts to regulate tax havens, demanding automatic exchange of relevant information.
• Provide technical assistance to developing countries, where requested, to help them address trade mispricing problems.