Africa was cheated out of US$11 billion in 2010 through just one of the tricks used by multinational companies to reduce tax bills, according to new Oxfam report, ‘Africa: Rising for the few,’ released on 2 June 2015.

This is equivalent to six times the amount needed to plug the healthcare funding gap in Ebola affected countries of Sierra Leone, Liberia, Guinea and Guinea Bissau.

Oxfam’s findings come as African political and business leaders get set to attend the 25th World Economic Forum Africa in South Africa. The main theme of the meeting will be how to secure Africa’s economic rise and deliver sustainable development. Reforming global tax rules so that Africa can claim the money it is due – and which is needed to tackle extreme poverty and inequality – is critical if the continent is to continue its economic rise.

Oxfam is calling for all governments to send their Head of State and Finance Ministers to the Financing for Development Conference in Ethiopia, in July. The Addis conference will set out how the world will finance development for the next two decades and is an opportunity for governments to start developing a more democratic and fairer global tax system.    

Winnie Byanyima, Oxfam International’s Executive Director said: “Africa is hemorrhaging billions of dollars because multinational companies are cheating African governments out of vital revenues by not paying their fair share in taxes. If this tax revenue were invested in education and healthcare, societies and economies would further flourish across the continent.”

In 2010, the last year for which data is available, multinational companies avoided paying tax on US$40billion of income through a practice called trade mispricing – where a company artificially sets the prices for goods or services sold between its subsidiaries to avoid taxation. With corporate tax rates averaging out at 28 percent in Africa this equates to $US11 billion in lost tax revenues.

Trade mispricing is just one of the ways multinational companies avoid paying their fair share of taxes. According to UNCTAD, developing countries as a whole lose an estimated US$100billion a year through another set of tax avoidance schemes involving tax havens.  

Companies also lobby hard for tax breaks as a reward for basing or retaining their business in African countries. Tax breaks provided to the six largest foreign mining companies in Sierra Leone add up to 59 per cent of the total budget of the country or eight times the country’s health budget.

Byanyima added, “African leaders must not sit by while international tax reforms are agreed which give multinational companies free reign to sidestep their tax obligations in Africa. Political and business leaders must put their weight behind the ever louder calls for the reform of global tax rules. African nations must also introduce a more progressive and democratic approach to taxation – including calling a halt to tax exemptions for foreign companies.”    

Existing international efforts to tackle corporate tax dodging such as the BEPS (Base Erosion and Profit Shifting) process, led by the Organisation for Economic Cooperation (OECD) for the G20, will leave gaping tax loopholes that multinational companies can continue to exploit across the developing world. Many African nations have been shut out of discussions on BEPS reform and will not benefit from them as a result.

---

Further resources

According to the UN’s Economic Commission for Africa’s Report on the High Level Panel on Illicit Financial Flows from Africa, there was a US$40 billion outflow from Africa due to trade mispricing in 2010. With corporate tax rates averaging out at 28 per cent in Africa this equates to nearly $US11 billion in lost tax revenues. Given that companies and investors from G7 countries are responsible for more than half of the foreign direct investment in Sub-Saharan Africa, companies from G7 countries may be responsible for robbing African governments of around $6 billion every year from just one tax trick alone.

Developing countries lose estimated US$100billion a year as a result of one set of tax avoidance schemes involving tax havens: see UNCTAD’s Investment Policy Hub Working Paper, ‘FDI, Tax and Development’.

Tax breaks provided to the six largest foreign mining companies in Sierra Leone add up to 59 per cent of the countries budget or eight times the country’s health budget: ‘Losing Out: Sierra Leone’s massive revenue loses from tax incentives’, London: Christian Aid.