New research by ActionAid reveals how tax avoidance strategies used by some multinational corporations deprive the world’s most impoverished communities of vital revenues. Tax treaties play a facilitating role in many of these schemes - and it is time they came to an end.
Right now, stretching across the world is a web of tax agreements between governments. They may not seem like the frontline in the fight against inequality and poverty, but today ActionAid shows how crucial they are for ordinary people everywhere.
Our report, ‘Mistreated’, shows how tax treaties are reducing the tax that some of the world’s poorest countries can collect from multinational companies.
Why does tax matter?
People around the world are fighting for adequate public schools, cities that are safe for women, and roads for getting goods to market – and they’re asking for us to join them.
Fighting for fair tax for public services in my home country of Zambia, I've seen how tax revenue is one of the most important, sustainable and predictable sources of public finance there is. It’s a crucial part of the journey towards a world free from poverty and can help teachers like Stella, below, to build a future for the next generation.
Why do tax treaties matter?
A tax treaty is an agreement between two countries, deciding which country can tax a foreign-owned company, among other things. Even though some treaties are decades old - signed by a different government many elections ago - they are still as powerful as they were when they were first agreed.
There are three really troubling problems with tax treaties. Our research has cracked open the opaque tax treaties system and revealed three main problems.
First problem – the lost revenue problem
Around the world, developing countries are losing billions in revenue thanks to tax treaties. This is depriving them of money desperately needed to fund health, education and other essential services that fulfil the rights of women and girls.
Second problem – the inequality problem
Many tax treaties between lower and higher income countries are unfair and take away more tax rights from the lower income country, often ensuring that money flows untaxed from poor to rich countries. This can only worsen global inequality.
Some higher income countries are particularly restricting the power of lower income countries to tax global companies. The UK and Italy are tied as the countries that have entered into the highest number of very restrictive tax treaties with lower income African and Asian countries.
Third problem – the both governments don’t collect it problem
Multinational companies are mistreating this global web of tax treaties.
Some treaties result in multinational companies not paying certain types of tax at all in any country. This is reducing corporation tax collected globally.
Cracking open tax treaties for all to see
Tax treaties have so far received little public scrutiny – but ActionAid is changing this.
For the first time, governments, journalists, and citizens from lower income countries will be able to clearly see which modern treaties their country has signed that dramatically limit their ability to tax multinational companies, and compare it to neighbouring countries. You can see for yourself the very restrictive tax treaties that countries are signed up to by clicking on a country in the map below.
Some governments are already starting to change their tax treaties for the better. Governments should not sign tax treaties that dramatically take away poorer countries power to tax, and undermine the fight against poverty and inequality.
Together with people like Stella, we are calling on governments to ensure multinational companies pay their fair share of tax in lower income countries, and reconsider very restrictive treaties as a priority. Join the conversation using the hashtag #taxpaysfor.
Read more about the Tax Power Campaign
Original source: Action Aid