Rip-Off Tax Treaties 'Making the World More Unequal'

October 5, 2020 0 By HearthstoneYarns

Multinational corporations are taking advantage of global tax treaties to avoid paying their fair share, thereby fueling poverty around the world, according to a groundbreaking report released this week.

The analysis by Johannesburg-headquartered ActionAid International shows how “rip-off tax treaties cost developing countries billions every year, tying the hands of governments, hurting some of the poorest people in the world, and deepening global inequality,” said campaigner Savior Mwambwa.

These treaties—which dictate how much, and even if, countries can tax multinational companies—”have no place in the 21st century,” ActionAid declares in its report.

As the (pdf) report explains, “Tax revenue is one of the most important, sustainable and predictable sources of public finance there is. It is a crucial part of the journey towards a world free from poverty—funding lasting improvements in public services such as health and education.” In particular, the group points out, many poor countries are asking for public funds to be put toward “the realization of women and girls’ human rights.”

Yet thanks to what Mwambwa calls the “broken tax treaty system,” global corporations “pay little or no tax in poor countries.”

In turn, he said, “Women and children in poverty pay the price when crumbling public services like schools and hospitals are starved of possible funding.”

Indeed, after examining more than 500 binding tax treaties that low- and lower-middle-income countries in sub-Saharan Africa and eastern and southern Asia signed with other countries from 1970 until 2014, the international development organization concluded that many such pacts “are ensuring that money flows untaxed from poor to rich countries, making the world more unequal and exacerbating poverty.”

ActionAid identifies the UK and Italy as the countries that have entered into the highest number of “very restrictive” tax treaties with African and Asian countries since the 1970s, followed by Germany. China, Tunisia, and Mauritius also have a rapidly growing number of similar treaties with some of the world’s poorest countries, the organization notes.

Generally speaking, tax treaties that lower income countries have signed with members of what ActionAid calls “the [Organization for Economic Cooperation and Development, or OECD] club of rich countries” take away more taxing rights than those with other countries. “Worryingly, the deals struck with OECD countries are getting worse,” the group says.