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27th Aug 2016

EU firms' tax dodging costs poor countries billions

  • Developing countries lose billions in revenue from tax dodging wealthy multi-national corporations (Photo: United Nations Photo)

Tax dodging by EU-based multinationals is costing developing countries billions in lost revenue.

A report out on Monday (16 December) by the Brussels-based development NGO Eurodad, says developing countries lose out between €660 and €870 billion each year mainly in the form of tax evasion by multinational corporations.

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“For developing countries, tax dodging is especially devastating, with more money leaving their economies than what they receive in aid,” Tove Maria Ryding, tax co-ordinator at Eurodad, said in a statement.

Ryding pointed out that while European citizens donate money to combat poverty in developing countries, EU-based multinationals are turning large profits in those same countries without paying taxes.

“Until our governments put a stop to this, Europe is giving with one hand and taking with the other,” she noted.

The report looked at 13 EU member states and their respective roles in tax-related capital flight from developing countries.

None has implemented adequate levels of tax transparency or full country-by-country financial reporting requirements for multinational companies.

While most have some sort of registry in place on ownership, the information is rarely disclosed to the wider public.

The implications of reigning in tax dodging is important, as developing countries face funding shortfalls of around €112 billion annually in order to meet the United Nation’s 2015 Millennium Development Goals.

Development NGO ActionAid earlier this year revealed how UK food giant Associated British Foods, via its subsidiary Zambia Sugar, used legal loopholes to avoid paying taxes in Zambia.

The company paid less than 0.5 percent taxes despite hitting record annual revenues of €200 million over five years.

Some of the biggest tax avoiders are also based in some of the wealthiest member states.

Eurodad says two out of three companies surveyed in Denmark pay no corporate tax whatsoever. Danish media in September reported some €36.8 billion in Danish funds are hidden away in tax havens.

The NGO also highlighted a lack of internal consistency in Denmark. Denmark speaks out against tax injustice on development policy but eschews policies to actually stop it, Eurodad said.

The Netherlands is described as one of the world’s most important financial conduits, allowing multinational corporations to channel profits to low-tax jurisdictions.

The amount of capital flowing through the country, unrelated to the domestic economy, is said to make it on paper, the world’s largest investor.

Some 8,500 multinational corporations have shell companies in the Netherlands.

Shell companies are legal entities set up to hide the owner’s identity and are often used to launder the proceeds of crime, corruption, and tax evasion.

The Netherlands also has around 12,000 trust offices or Special Financial Institutions, used to channel royalty, loans and interest payments or dividends between subsidiaries of a group.

Sweden is also becoming a haven for holding companies, by introducing favourable tax rules to compete with those found in Luxembourg and the Netherlands.

Last year, the Swedish government acknowledged capital flight from developing countries as a problem but has done little to crack down on it, Eurodad said.

“The government has not yet presented any concrete action plan,” its report noted.

For its part, the UK announced measures in October to increase transparency and to set up a public registry of companys' beneficial ownership.

It has also called for global action and international regulation, but Eurodad said none of its words have been turned into action so far.

The Eurodad report covered the Czech Republic, Denmark, Finland, France, Hungary, Ireland, Italy, Luxembourg, Netherlands, Slovenia, Spain, Sweden and the UK.

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