The Panama Papers, inequality and the need for #taxpower

Tuesday, April 12, 2016 - 10:23

So far the Panama Papers have succeeded in ousting a sitting head of government, began a much needed debate about whether countries like New Zealand should count as tax havens,  and have again highlighted allegations of corruption in world soccer. Who knows what casualties lie ahead?

But what do the Panama Papers - the 11.5 million leaked documents obtained by the International Consortium of Investigative Journalists - really tell us? Aside from the length to which the super wealthy will go to avoid paying tax and disclosing where they keep their money, the Panama Papers provide further evidence for what ActionAid has been saying since our first work on exposing corporate tax dodging back in 2010. The international tax system is broken and despite rhetoric from leaders about ending the era of tax havens, the problem has not been properly addressed. Instead we have been given an array of insufficient solutions, most recently the OECD’s Base Erosion and Profit Shifting (BEPS) process.

The sheer volume of individuals and companies using tax havens is huge; the economic distortions and deprivation of public revenues is on a scale nearly unimaginable. The extent to which the rich will go to keep assets hidden and untaxable would be amusing if it weren’t for the fact that this is money that should be taxed and then used to pay for the schools, hospitals and job-creation programmes that are lacking or underfunded around the world.  

Only a fraction of what the Panama Papers will reveal has so far been released to the public, but among them are some striking examples.

In Uganda, the Panama Papers show how an international oil company worked  to avoid  a new tax by moving its official address to Mauritius, even though none of its business is conducted in Mauritius. Along with the Seychelles, Mauritius is one of the most prominent tax havens in Africa.

In the Democratic Republic of the Congo the papers reveal that companies may be avoiding measures to curb the flow of “blood minerals” through use of offshore holdings in Mauritius, Panama, the British Virgin Islands and a number of other tax havens.

In Guinea, the papers reveal complex offshore corporate structures behind a mining company’s investment in the world’s largest iron ore deposit.

Deeper revelations

The leaks have woken people up to the massive scale of the problem -- namely that the super rich and big corporations can get away with hiding their money away from the prying eyes of the tax collector. But the reaction to the leaks in different countries tells an interesting story.

In Iceland the leaks have led to the fall of the sitting Prime Minister and possibly his government when it was revealed that his wife has an interest in a company that is owed money from the Treasury.

In countries like Britain and Australia, the leaks have been a topic of daily debate and in the case of Britain, considerable political fallout as the Prime Minister has become embroiled in the scandal and has been forced to publish his tax returns.

But in South Africa – where I live – the naming of a member of President Zuma’s family in the Panama Papers is just another example in a long list of alleged corruption from elites. Headlines this week are dominated by the fact that Parliament failed to censure the President despite a ruling from the Constitutional court last week that he violated the constitution when he did not repay the money he spent on a swimming pool and other furnishings for one of his houses. And that’s just one of over 700 cases of reported corruption in which President Zuma has been implicated over the years.

Although social justice campaigners have long been highlighting the fact that the system is rigged in favour of the very rich, this is still a huge moment. For the past few years, organizations like ActionAid have been campaigning on the issue of tax justice. We do so because this is an issue that connects the dots between the very rich who game the system and the very poor who are denied their basic rights - rights to food, rights to education, rights to equal pay for equal work and a number of others. When developing countries don’t have the money to invest in clean water, quality health care and safe food, the cost is measured in lives. And there would be more than enough to provide these rights and services for all if the the very rich and large corporations would pay their share of tax.

Some companies claim that they already do this. That’s the easy part. What’s not easy is making sure that companies are not using loopholes to avoid paying tax. Which is why we need an independent global tax body set up under the UN to ensure that corporations pay their fair share and that countries live up to their commitments to close tax havens.

We also need all jurisdictions - including tax havens - to keep publicly available registers of who really owns companies so that complex corporate structures can’t be used to hide money from the tax authorities. Apart from exposing companies and individuals hiding their money from the tax man, it would help governments around the world in their fight against money laundering and other illegal practices. Multinational companies should also be required to make reports on where their economic activity takes place and where they pay tax - so called ‘country-by-country reporting’ - available to the public as well as to tax authorities.

Apart from increased transparency, the use of tax havens can also be fought through other countries revising or cancelling their tax treaties with jurisdictions with high level of tax or corporate secrecy, or will special low or no tax regimes for foreign residents - a typical feature of a tax haven. All countries, from the traditional sunny island tax havens to e.g. developed economies in the EU, should review their own legislation to ensure they they don’t act as a tax haven for money that should be taxed elsewhere.

The Panama papers also show that the super rich have many enablers - lawyers, accountants, consultants, even some friendly governments. Tax avoidance isn’t just big business, it’s an industry. We all must act now to end the practice of the ultra rich and big business being able to hide their money from tax collectors. Failure to do so is to side with the huge multinational corporations and their billionaire owners -- and  against the rest of us.  But the promise of the Panama papers leak is that the days when the super rich can both hoard resources and avoid paying their fair share are nearly over.

These leaks and others before them reveal a glaring truth: tax dodging is both a cause and a consequence of inequality. Most of the activity that the leaks uncover is legal, and part of the reason that it’s legal to keep money secret and untaxed is because of the undue influence that the very rich have over policy decisions.

The world has more than enough resources to meet everyone’s needs. It’s time to prioritize those needs over the greed of the very richest.

File 33596The campaigning continues in El Salvador as well