17 April 2017

Africa: New Reports Show Massive Tax Losses

analysis

On April 15, "tax day" in the United States, tens of thousands of demonstrators in over 200 communities around the country marched to demand that President Trump make public his tax returns (http://taxmarch.org/home/). Protesters also denounced his use of taxpayer funds for his personal profit and military escalation while his administration continues its assault on spending for urgent public needs at home and around the world. There is no sign that the President will comply with the demand for transparency. But the award of a Pulitzer Prize last week to the international consortium that exposed the Panama Papers was only one indicator that the drive to expose tax evasion, tax avoidance, and corruption around the world will continue.

One new report, from the Tax Justice Network, estimated that global tax losses by governments to "profit-shifting" come to at least $500 billion a year, while another report from Oxfam America cited $1.6 trillion stashed overseas by the 50 largest U.S. companies alone for the purposes of reducing their U.S. taxes. And Shell Oil was forced to admit having paid a $1.1 billion bribe to a former oil minister in Nigeria to facilitate the award of the rich Malabu oil block.

This AfricaFocus Bulletin contains brief press releases on these three reports, as well as on new legislation introduced by Democrats in the U.S. Congress that would limit such abuses, particularly by requiring "multinational corporations to report their employees, sales, finances, tax obligations and tax payments on a country-bycountry basis." As the Oxfam report and other critics have noted, Trump's so-called "tax reform" plans would instead massively reduce transparency and allow corporations and the ultra-rich to grab even larger shares of national wealth.

Additional links of interest:

CBS News, "Secret Service costs for Trump family protection continue to mount," April 14, 2017 http://tinyurl.com/n7ftvpd "One purchase order reviewed by CBS News shows the US Secret Service has spent $35,185 on golf cart rentals [to Trump's resort] in Palm Beach County, Florida since the President's inauguration."

"Civil Society Experts Issue Accelerated Agenda for Addressing Illicit Financial Flows in Africa," January 26, 2017, press release with link to 10-page full report. http://tinyurl.com/kqznhqd "The Accelerated IFF Agenda is a set of 14 recommendations that identify steps African governments can take to jump-start the process of addressing illicit financial flows (IFFs)."

Financial Accountability and Corporate Transparency (FACT) Coalition https://thefactcoalition.org/ "a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system" Essential up-to-date resources on U.S. legislative issues and other policy and advocacy efforts.

US-Africa Network https://usafricanetwork.org - direct URL: http://tinyurl.com/m9er3kg Resources on illicit financial flows and the Stop the Bleeding Africa campaign

Previous AfricaFocus Bulletins on tax justice and related issues http://www.africafocus.org/intro-iff.php

Shell Knew

Global Witness Report / April 10, 2017

http://www.globalwitness.org - direct URL: http://tinyurl.com/k97cenq

[note story at link includes additional graphics, short video, and link to full report]

BBC News, April 11, 2017, "Shell admits dealing with money launderer"

Emails show senior executives at world's fifth largest company knowingly took part in a vast bribery scheme that robbed the Nigerian people of $1.1 billion.

It's one of the biggest corruption scandals in the history of the oil sector - and this is the biggest development so far.

Damning new evidence shows oil giant Shell took part in a vast bribery scheme that robbed the Nigerian people of over a billion dollars.

Internal Shell emails seen by Finance Uncovered and Global Witness show how the world's fifth biggest company took part in a scheme which deprived Nigeria and its people of $1.1 billion in a murky deal for access to one of Africa's most valuable oil blocks, known as OPL 245.

For years, Shell has denied it did anything wrong, but today's emails show they knew the money would be diverted to private hands, and they went ahead with the deal anyway.

This is devastating for the people of Nigeria. Right now five million of them face starvation. The money paid for the block equates to one and a half times what the UN says is needed to respond to the current famine crisis. But the Nigerian people saw none of the benefits.

What the Leaked Emails Show

The emails we have published today show senior executives knew the massive payment for the oil block would go to Dan Etete - a convicted money launderer and former Nigerian oil minister. He spent some of it on a private jet, armoured cars, and shotguns.

The emails also show Shell's top brass were told that money was likely to flow to some of the most powerful people in the country, including then President Goodluck Jonathan.

He spoke to Mrs E this morning. She says E claims he will only get 300m we offering - rest goes in paying people off. (Shell representative and former MI6 agent John Copleston in a leaked email to Shell Africa executives. “E” is understood to be Dan Etete.)

Shell portrays itself as an oil company that does good. Yet our investigation reveals a story of hypocrisy and deception, and finds the company's most senior bosses depriving Nigeria of life-saving funds by going ahead with a dodgy deal that they knew was a vast bribery scheme.

Background: The OPL 245 Deal

In 2011, Shell and the Italian oil company Eni paid $1.1. billion in a murky deal for this lucrative asset located off the coast of Nigeria. After a lengthy investigation, Global Witness tracked down documents showing that this money didn't go to benefit the Nigerian people as it should have done. Instead it went to convicted money launderer and former oil Minister, Dan Etete, who had awarded himself ownership of the block in 1998 via a company he secretly owned, Malabu Oil and Gas.

For six years, Shell has denied it did anything wrong, and said it only dealt with the Nigerian government in securing rights to the block. This latest investigation shows that Shell's senior executives knew where the money was really going.

Top 50 US Companies Stash $1.6 Trillion Offshore

Current "Reform" Proposals Likely to Make Tax Dodging Even Worse

Oxfam America, April 12, 2017

http://www.oxfamamerica.org - direct URL: http://tinyurl.com/k2yhvdr

[full report available at http://tinyurl.com/lgo8hru]

The 50 biggest US companies, including global brands such as Pfizer, Goldman Sachs, GE, Chevron, Walmart, and Apple, have $1.6 trillion stashed offshore according to Oxfam America, a $200 billion increase in a single year.

In a new report based on corporate financial, lobbying, and investor disclosures released ahead of Tax Day, Oxfam revealed that the 50 largest US companies relied on an opaque and secretive network of at least 1,751 subsidiaries in tax havens to avoid paying their fair share of taxes. Oxfam also warned that reforms proposed by President Trump and Congressional leaders will only further rig the rules in favor of the rich and powerful, deepen the inequality crisis, and harm poor families in the US and in developing countries worldwide.

"As Americans prepare for the yearly ritual of filing their returns and sending Uncle Sam a check, the 50 largest US companies are hoarding more than a trillion dollars offshore that could provide much-needed funds to fight poverty and inequality here and around the world," said Robbie Silverman, Senior Advisor for Oxfam America and one of the authors of the report. "While President Trump was elected on the promise to fix the rigged political and economic system, his proposals will only enrich powerful corporations and enable special interests to game the tax code at the expense of ordinary taxpayers and small businesses."

The report, which updates Oxfam's analysis from a similar report last year, reveals that the 50 largest US companies have deepened their use of tax havens and boosted their investments in building political influence to push for even greater tax breaks than they already enjoy.

Even as these 50 companies earned over $4.2 trillion in profits globally, they used offshore tax havens to lower their effective overall tax rate to just 25.9% according to the most generous estimate of their tax payments, well below the statutory rate of 35% and even below average levels paid in other developed countries. Since 2009, these 50 companies alone have spent $2.5 billion in federal lobbying - almost $50 million for every member of Congress. Oxfam estimates that for every $1 these companies spent lobbying on tax issues, they received an estimated $1,200 in tax breaks.

"Every year rigged tax rules cost Americans approximately $135 billion in corporate tax dodging and sap an estimated $100 billion from poor countries - revenue that should go towards building schools, bridges and hospitals," continued Silverman. "The losers in this rigged game are small businesses, working families, and the poor who cannot deploy armies of lobbyists to preserve their favorite tax loophole."

The report does not accuse any of the companies of acting illegally - rather, Oxfam's analysis demonstrates how the current tax system permits companies to dodge hundreds of billions of dollars of tax within the bounds of the law.

Instead of supporting straightforward reforms to prevent large companies from gaming the system, President Trump and leaders in Congress are pitching "reform" that would provide massive tax breaks to US companies that have trillions stashed offshore, give giant new tax breaks to large, profitable companies, and dramatically reshape the way US companies are taxed with terrible implications for poor countries.

Oxfam estimates that the top 50 US companies would stand to gain between $312-327 billion from the repatriation holidays proposed by President Trump and the House GOP. Just 4 companies - Apple, Pfizer, Microsoft and General Electric - together could potentially pocket as much as $132 billion in new tax breaks from this single policy change.

The report also reveals that the Border Adjustment Tax, proposed by the House GOP, will harm poor and middle class Americans and could cost poor countries more than what the US spends on poverty-focused foreign aid. As a direct result of this proposal, poor countries could face rapidly increasing costs in servicing their debts, which would drain resources needed for schools, hospitals and other basic services that help pull their citizens out of poverty.

The tax reform plans, which will cost the US trillions of dollars over the next decade, must also be considered and understood in the context of the Trump Administration's proposals to dramatically slash the federal budget, in part to help pay for tax cuts for the wealthy.

President Trump's budget would severely cut or abolish programs that provide low-income Americans with affordable housing, job training, energy assistance, rehabilitated homes in neighborhoods hard-hit by foreclosures, and food delivery to homebound seniors. At a time of unprecedented global crisis, with 65 million people forced to flee their homes and up to four famines looming, the cuts would also devastate US leadership to save lives and help the world's poorest and most vulnerable.

Oxfam calls on Congress to go back to the drawing board on its tax reform plans and start over with measures that do not further entrench the inequality crisis. Congress must also work to enable cooperation with other countries that are struggling to prevent tax abuse rather than compete with other nations in a mutually destructive race to the bottom. The Corporate Tax Dodging Prevention Act and the Stop Tax Haven Abuse Act are just two reasonable measures that would simplify the tax code and ensure companies pay their fair share.

"A fair and effective tax system is the lifeblood of an efficient and well-functioning government, allowing for investments in basic services like schools, hospitals, roads, first responders, social safety nets and other vital public services that can address poverty and ensure a thriving business climate," said Silverman. "The vast sums that companies have stashed in tax havens should be fighting poverty and rebuilding America's infrastructure, not hidden in Panama, Bahamas, or the Cayman Islands."

Editor's notes: The Oxfam report analyzed the tax practices between 2009-2015 of the 50 largest public companies in the US according to the Forbes 2000 list: Allergan, Alphabet (Google), American Express, American International Group (AIG), Amgen, Apple, AT&T, Bank of America, Berkshire Hathaway, Boeing, Capital One Financial, Chevron, Cisco Systems, Citigroup, Coca-Cola, Comcast, CVS Health, Dow Chemical, Exxon Mobil, Ford Motor, General Electric, General Motors, Gilead, Goldman Sachs, Home Depot, Honeywell International, IBM, Intel, Johnson & Johnson, JPMorgan Chase, Medtronic, Merck, MetLife, Microsoft, Mondelez, Morgan Stanley, Oracle, PepsiCo, Pfizer, Phillips 66, Procter & Gamble, Prudential Financial, United Technologies, UnitedHealth Group, US Bancorp, Verizon Communications, Walgreens, Wal-Mart, Walt Disney, and Wells Fargo.

New estimates reveals the extent of tax avoidance by multinationals

Tax Justice Network

Press Release, March 22, 2017

http://www.taxjustice.net - direct URL: http://tinyurl.com/kyg26s6

Global tax losses estimated at $500 billion a year

Losses account for a higher share of GDP in lower-income countries

Losses in some countries such as Zambia and Argentina exceeded 4% of GDP

Biggest dollar losses in the USA, estimated at $190 billion in 2013

New figures published today by the Tax Justice Network provide a country-level breakdown of the estimated tax losses to profit shifting by multinational companies. Applying a methodology developed by researchers at the International Monetary Fund to an improved dataset, the results indicate global losses of around $500 billion a year. The figures appear in a study published today by the United Nations University World Institute for Development Economics Research (UNU-WIDER, in Helsinki). Full study available at https://www.wider.unu.edu/node/74539

While this global total is more cautious than the $600 billion estimate of the IMF researchers, the distribution is also different. Losses are now estimated to be even more intense in lower-income countries in relation to GDP and as a proportion of total tax revenues. In addition, today's estimates include the full country breakdown.

Profit shifting is the process whereby companies move profits from their subsidiaries in higher tax countries, where the real economic activity takes place, to other subsidiaries in 'tax havens'. This is typically achieved by the multinational company setting up internal trades which exploit international tax rules to move taxable profits from one jurisdiction to another.

Profit shifting has been a big focus of international attention since scandals at companies like Apple and Amazon revealed the scale of distortions - and the systemic nature of avoidance schemes marketed by big 4 accounting firms was then laid bare in the 'LuxLeaks' revelations.

Tax Justice Network chief executive, Alex Cobham and Petr Janský of Charles University in Prague, carried out the analysis which recreates the methodology of a study published by researchers at the International Monetary Fund in 2016. Cobham and Janský replicate the IMF analysis, and then repeat it using a more robust source of national tax revenue data.

The data showed that whilst the largest losses occurred in rich economies such as the United States, lower-income countries were the biggest victims of profit shifting. Some countries, such as Argentina (4.42%) lost a significant proportion of their GDP to profit shifting. In Chad, the estimated losses to profit shifting were larger than all of the (non-resource) taxes collected in the country that year. In Pakistan the losses were 40% of tax revenues. While any estimates of this deliberately hidden phenomenon are necessarily uncertain, the order of magnitude indicates that the economic development of countries may in some cases be significantly undermined by the activities of multinational companies.

The calculated losses to individual countries can be seen in this interactive global map: goo.gl/vZiWjj

A spreadsheet with the data can be found here: http://tinyurl.com/mc2laa2

[Note by AfricaFocus editor: The data by country in the spreadsheet includes 146 countries, excluding Russia and many countries in the Middle East. The largest amounts of tax losses are from the United States ($189 billion) and China ($67 billion), but most countries with a large percentage of losses compared to the GDP are in Africa (24 countries) or other developing areas (16 countries).]

On the publication of the report Alex Cobham, chief executive of the Tax Justice Network said:

These findings support the long-held view that it is lower-income countries that suffer the most intensive losses due to tax dodging by multinational companies. The current status quo, in which international tax rules are set at the OECD where lower-income countries lack any effective voice, is simply untenable.

Now we need political progress to challenge profit shifting. Governments around the world can legislate today for the publication of multinational companies' country-by-country reporting - revealing the precise pattern of profit shifting to citizens, and giving tax authorities the power to curtail it.

...

Two New Bills Would Plug Major Loopholes in Our Offshore Corporate Tax System

Tax Justice Blog, April 6, 2017

http://www.taxjusticeblog.org - direct URL: http://tinyurl.com/mxxkzwj

By Richard Phillips, Senior Policy Analyst at Institute on Taxation and Economic Policy (http://www.itepnet.org/)

A new pair of bills introduced by Representative Lloyd Doggett (DTX) this week would crack down on loopholes that allow corporations and individuals to avoid paying their fair share in taxes.

Rep. Doggett's Stop Tax Haven Abuse Act, which was sponsored by Senator Sheldon Whitehouse (D-RI) in the Senate, would close a number of the most harmful loopholes in the current international tax code. Taken together, the provisions of the bill would reduce international tax avoidance by $278 billion over 10 years.

Corporations' use of offshore tax gimmicks have grown so out of control that companies have now accumulated a stunning $2.6 trillion hoard of money offshore for tax avoidance purposes. The bill wouldn't entirely solve the problem of tax haven abuse, but it could ensure corporations are paying part of the estimated $100 billion they avoid each year in taxes. Some of the key components of the bill include provisions that would:

Reduce corporate inversions by treating the corporation resulting from the merger of a U.S. and foreign company as a domestic corporation if shareholders of the original U.S. corporation own more than 50 percent (rather than 20 percent under current rules) of the new company, or if the company continues to be managed and controlled in the United States and engaged in significant domestic business activities (meaning it employs more than 25 percent of its workforce in the United States).

Disallow the interest deduction for U.S. subsidiaries that have been loaded up with a disproportionate amount of the debt of the entire multinational corporation. This provision would curb socalled "earnings stripping," a practice in which a U.S. subsidiary borrows from and makes large interest payments to a foreign subsidiary of the same corporation to wipe out U.S. income for tax purposes.

Require multinational corporations to report their employees, sales, finances, tax obligations and tax payments on a country-bycountry basis as part of their Securities and Exchange Commission (SEC) filings. Such disclosures would provide crucial insights into how companies are gaming the international tax system and would provide more transparency to investors.

Repeal the "check-the-box" rule and the "CFC look-through rules" that allow companies to shift profits to tax havens by letting them tell foreign countries that their profits are earned in a tax haven, while telling the United States that the tax-haven subsidiaries do not exist.

Rep. Doggett's other new tax-related bill, the Corporate EXIT Fairness Act, takes direct aim at one of the main drivers of corporate inversions. Under the current tax code, companies have a huge incentive to invert or become a foreign corporation (at least on paper) because they can permanently avoid paying taxes on accumulated offshore earnings. Doggett's legislation would require inverted companies to pay the full amount of taxes they owe on offshore earnings if they become a foreign company, which means that avoiding taxes on unrepatriated earnings will no longer be a factor in making that decision.

The bill also contains the same anti-inversion provisions in the Stop Tax Haven Abuse Act that tighten rules around what constitutes a domestic corporation.

What differentiates Rep. Doggett's exit tax bill from similar bills is that it would require all expatriating companies to pay what they owe on their offshore earnings, rather than just those companies that are engaging in a transaction that meets the definition of an inversion. This makes the bill even more effective in that it reduces the offshoring tax incentive across the board and allows the bill to work as a complement to other anti-inversion legislation.

Rather than moving to an even more loophole-ridden corporate tax code as the House GOP has proposed, lawmakers should be considering reforms such as those in the Stop Tax Haven Abuse Act and the Corporate EXIT Fairness Act that crack down on offshore tax avoidance.

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