Commentary: Multinationals put poor countries in fix
The African Union Advisory Board on Corruption (AUABC) recently requested major multinationals operating in Africa to be more open about the taxes and royalties they pay governments to improve transparency and accountability.
Although a reasonable request, this is a tall order when you consider that often it is the governments themselves that prefer such information is not made public.
Secondly, the corporations too may not want this information to be easily available for their competitors and consequently use it against their own business interests.
Thirdly, multinational corporations carry considerable clout. They are not entities that like to be told what to do, unless of course it pays them to listen or the penalty for not towing the government line is deemed to costly.
Fourthly, corporations employ a host of consultants, lawyers and accountants to make sure their tax liability is kept at the miminum, but frequently the methods verge on the crimminal.
The AUABC was holding talks in Arusha on finding ways to reduce the Illicit Financial Flows (IFFS) out of Africa. It is estimated that Africa loses $50 billion to $60 billion annually because of IFFs.
According to UNCTAD, developing countries as a whole lose an estimated $100 billion a year due to tax avoidance schemes involving tax havens. However, being relatively poor, African countries cannot play hard ball with corporations that bring in much needed investment funds. Instead African governments often bend backwards to accommodate their wishes. Companies also lobby hard for tax breaks as a reward for basing or retaining their business in African countries.
Mid this year, Oxfam said In 2010, the last year for which data is available, multinational companies avoided paying tax on $40billion of income through a practice called trade mispricing. This is where a company artificially sets the prices for goods or services sold between its subsidiaries to avoid taxation. Oxfam reported that with corporate tax rates averaging out at 28% in Africa, this equates to some $S11 billion in lost tax revenues annually. The figures vary but not the intent.
For some time now, the Organisation for Economic Cooperation and Development (OECD), which basically comprises of the world’s wealther nations, has been working on rules that will limit tax dodging.
OECD says Google, Amazon and Starbucks are among the conglomerates that have wriggled out of paying nearly $250 billion in global dues. Only last week, Amazon announced it had abandoned a complicated corporate structure that allowed it to divert sales and profits away from the UK. This followed introduction of tough new measures and public outrage at seeing popular global brands paying peanuts to governments.
AUABC has the main role of promoting and encouraging the adoption of measures and actions by State Parties to prevent, detect, punish and eradicate corruption and related offences in Africa.
The OECD is now pushing for adoption of the Base Erosion and Profit Shifting (BEPS) process, which basically makes it much harder for multinationals to misbehave. Unfortunately African nations have been largely shut out of these discussions. But that does not mean African governments ignore the calls for more accountability and oversight, when at the end of the day they are answerable to the public.
