20/08/20

INTERNATIONAL TAX: Tax avoidance weakens fight against Covid-19, charity claims.

As published on irishtimes.com, Thursday 20 August, 2020.

Developing countries are struggling to meet the costs of Covid-19, according to charity Christian Aid. And it says the money such countries are losing to sharp tax practices would more than provide the resources they need to get their economies back up and running.

Aggressive tax avoidance by multinational companies has left many poorer countries with economies that “are not robust enough to properly protect citizens from large-scale job losses”, the charity says.

Together with “unsustainable debt repayments”, it is “undermining developing countries’ capacity” to respond to coronavirus.

The report, Building Back With Justice: Dismantling Inequalities after Covid-19, suggests that the introduction of a wealth tax and a minimum corporation tax rate, alongside debt relief, could make a major difference in poorer countries’ efforts to battle the impact of the virus.

An analysis by the charity has determined that Ethiopia’s tax losses arising from it calls “abusive” tax practices equal the amount it is spending in its response to the coronavirus crisis, while, it says, Kenya has lost nearly four times as much tax revenue as it spends on its coronavirus response.

An earlier Christian Aid report estimated that $416 billion was lost by developing countries every year due to tax avoidance.

The charity is calling for multinational companies to be treated as single entities for tax purposes, arguing that this would disincentivise profit-shifting to low-tax jurisdictions.

It also wants taxpayer-funded bailouts for multinationals to be made contingent on them reporting publicly on their activities in each country where they operate

The charity says Ireland has the ability to play a potentially key role in global tax reform.

“The introduction of a minimum effective corporation tax rate through the OECD seems inevitable and, rather than seek to drive that rate down as low as possible, Ireland should engage constructively and see a sustainable, equitable rate as being both in Ireland’s interest as well as in the interests of countries of the global south,” said Sorley McCaughey, head of policy and advocacy at Christian Aid Ireland.

He added that a Government decision to remove “its opposition to greater transparency around how multinationals operate” would go a long way towards halting practices such as profit-shifting “which we know are damaging to poorer countries”.

The aid agency notes that, while Ireland has committed to spend 14 per cent to support businesses and workers against a UN recommendation of 10 per cent, “the reality is that the poorest countries are only able to commit a fraction of this amount”.

It says that an analysis of International Monetary Fund data shows that Ethiopia, for instance, is due to spend only 1.75 per cent of gross domestic product, while Kenya is spending 0.9 per cent and Malawi has budgeted for 0.85 per cent.

“This underinvestment is occurring against a backdrop of estimates by the World Bank that as many as 100 million people could be pushed into extreme poverty as a result of the economic impact of the coronavirus crisis by the end of the year,” it says.

Christian Aid notes the UN’s World Food Programme warns that up to 270 million more people will go hungry this year because of disruptions to harvests and supply chains, an increase of 82 per cent on pre-pandemic figures.

On a wealth tax, it says that levying a 0.5 per cent wealth tax on the richest 1 per cent of Irish residents could raise €2 billion, “while a 5 per cent tax on the richest 5 per cent could raise €20 billion”.