‘Tax-havens’ routing 60pc of global trade
JAKARTA, Oct 19: As ‘tax-havens’ are now routing some 60 per cent of international trade, multinational corporations (MNCs) have become more aggressive in evading taxes.
As the volume of global trade was estimated at $23.5 trillion in 2013, of which $18.5 trillion was trade in goods and the rest was trade in services, some $14 trillion is being routed through the tax heavens.
This is also fuelling capital flights, especially from the developing and poor countries, where crony capitalists have nexus with political elites and MNCs.
Fictitious costs, transfer pricing and fictitious hedging transactions are also growing as tools of transferring financial assets illegally.
Against the backdrop, exposing or unearthing corruption and illicit financial outflows has become more challenging for journalists.
Experts, journalists and activists from different countries across the world expressed these observations at a day-long brainstorming on Monday, mainly organised for journalists to improve their understanding on illicit financial flows.
Financial Transparency Coalition (FTC), a global platform to fight illicit financial flows, along with Prakarsa, an Indonesian development organisation, and Transparency International Indonesia, jointly organised the programme in Jakarta.
The main event, Sixth Financial Transparency Conference titled ‘Many Voices, One Purpose’ takes place on Tuesday and Wednesday to strengthen the global fight to curtail illicit financial flows through promotion of a transparent, accountable and sustainable financial system.
In the pre-conference journalist seminar on Monday, FTC director Porter McConnell said countries in Asia are suffering more from negative impact of illicit financial outflows.
Global Financial Integrity (GFI) legal counsel Heather Lowe presented legal complexities in fighting capital flights, especially from the developing countries. “Tax evasion is a crime, while laundering the evaded income is not in many countries,” she said.
Tax Justice Network research director Alex Cobham explained how financial secrecy helps to enhance capital flight or money-laundering
Alvin Mosioma, executive director of Tax Justice Network in Africa, unveiled that 60 per cent of global trade were done through ‘tax-havens’, implying the growing strength of capital flights and tax evasions across the world.
‘Tax-havens’ are countries, constituencies and regions offering zero tax facilities for parking funds without asking any question on sources, and also assuring full secrecy of such funds. British Virgin Island, Cayman Islands, Mauritius, Switzerland and Luxembourg are some of the well known ‘tax-havens’.
Many participants also said Singapore became a new Switzerland, and financial assets from Indonesia, Malaysia and many other countries flowed to the city state.
According to an estimation of GFI, a Washington-based organisation, illicit flows from the developing and emerging countries are growing at 9.4 per cent annually, and some $991.2 billion outflowed from these countries as illicit capital in 2012. Gross outflows between 2003 and 2012 stood at $6.6 trillion.
Prakarsa executive director Setyo Budiantoro presented his organisation’s findings on transfer pricing in Indonesia.
In the day-long discussion, journalists from Indonesia and Ghana described their practical experiences on preparing news reports on tax evasion, corruption and financial outflows.
They, along with others, said it has become more challenging and riskier to track illicit funds and activities of MNCs.
Several documentaries and case studies presented in the seminar also revealed that politically-backed powerful people were actively involved in corruption and illegal transfer of financial assets.
Among others, Christian Freymeyer of FTC, Kristof Clerix of International Consortium of Investigative Journalists and Eryn Schornick of Global Witness spoke in the day-long seminar.
a The Irish Government has published an update on its International Tax Strategy, in which Finance Minister Michael Noonan stresses that the country is “well positioned for the post-base erosion and profit shifting (BEPS) world.”
According to Noonan, “This is not something that has happened by accident. Difficult but necessary changes to our residency rules have enabled us to manage change on our own terms and in a way that provides certainty for those affected. While the Organisation for Economic Cooperation and Development (OECD) BEPS actions may present challenges for policymakers and businesses around the world, there are also opportunities for countries like Ireland, where the alignment of tax and substance has been a long-standing feature of our economic and international tax policy.”
The updated International Tax Strategy commits the Government to maintaining the 12.5 percent corporate tax rate. It states that Ireland is likewise committed to the full exchange of tax information with its tax treaty partners, and to the global exchange of tax information in line with existing and emerging OECD and European Union (EU) rules.
Ireland will actively participate in the EU’s Code of Conduct and the OECD’s Forum on Harmful Tax Practices, and play its full part in implementing the OECD’s BEPS recommendations. The Government is legislating for country-by-country reporting in accordance with the OECD standards.
As the Strategy explains, the Government will introduce a Knowledge Development Box (KDB) with a 6.25 percent corporate tax rate for income derived from intellectual property. According to Noonan, “The KDB will be the first and only box in the world to meet the tough new standards of the OECD’s ‘modified nexus’ approach. Our commitment to the OECD standard provides long-term certainty to taxpayers at a time when many international businesses are re-evaluating their structures and investment choices to compete and succeed in a post-BEPS world.”
The Strategy also states that the Government will reject the introduction of measures in national legislation that could constitute harmful tax competition, and eliminate any measures that are found to be harmful.
