Dangerous Ideas in Development Why are Aid Donors Frightened of Taxation? John Christensen Director

 taxNEWSPEAK: The art of obfuscationThe art of obfuscation  challenges to national sovereignty in an era of transnational trade and investment  economic confusions  role of tax incentives  defining capital flight  “tax efficiency” – a good thing, or bad?  legal confusions  evasion v avoidance  don’t mess with corruption  dirty deeds in secret places: romantic notions about small islands, and the problem of case studies Reasons to be fearful: part three

whose job is it anyway?  international tax cooperation is obscure and generally under-developed  an alphabet soup of international institutions and initiatives:  OECD / IMF / FATF / ECOSOC / UNCAC / ONODCP / FSF / IASB  there is no tax equivalent to the WTO – so who do we lobby? A global parliament? (Monbiot, The Guardian, 24 April 2007)  Companies and rich people exert a useful ‘discipline’ on high-tax high-spend governments: discuss “Tax competition is the only agent of productivity for governments – it is the only competition they have.” Jacques de Saussure partnet, Pictet & Cie Quoted in The Economist, 24 FEB 2007

legal barriers  duties of directors and professional advisers  much tax planning happens in the grey space between national legal systems  the legal basis for much tax avoidance could be overthrown by a general anti- avoidance principle  who can exert control over the tax havens?

economic confusions  if tax competition can be harmful (as the OECD tells us it can), in what circumstances can it be benign?  capital flight – poorly defined and under- researchedpoorly defined under- researched  tax avoidance – a director’s duty? Or the trump card in the corporate social responsibility debate?director’s duty  tax incidence – a contested area!!a contested area!!

confused thinking on corruption  flawed definitions plus biased perceptions result in a skewed geographydefinitionsskewed geography  ‘phase two’ of the corruption debate needs to focus on the Enablers

extreme tax – new agendas  Finance for Development – the Road to Doha  trade negotiations  debt relief  corporate responsibility and accountability  global governance  anti-corruption initiatives

taxNEWSPEAK – some examples  tax efficiency  proactive asset protection  tax advantaged products  mitigating tax risks

The Problem The deliberate and illicit disguised expatriation of money by those resident or taxable within the country of origin. Tax evasion is often the motive for capital flight.

Who owes what to whom? Despite the massive debt incurred in the past, Sub-Saharan Africa is a net creditor to the rest of the world in the sense that external assets (i.e. the stock of flight capital) exceeds external liabilities (i.e. external debt). The stock of capital flight from SSA (estimated at $274 billion including interest earnings) was equivalent to 145 per cent of the total debt owed by the countries in the mid-1990s. Boyce, J.K. and Ndikumana, L. (2005)

“Tax is a cost of doing business so, naturally, a good manager will try to manage this cost and the risks associated with it. This is an essential part of good corporate governance.”

Re-thinking corruption Re-examine prevailing definition: the misuse of entrusted power for private gains -- to take account of all actions which undermine public confidence in the integrity of the systems of laws and institutions which structure economic and social transactions.

Country rank Tax haven countries 2006 CPI score 5Singapore9.4 7Switzerland9.1 9Netherlands8.7 11Luxembourg / UK8.6 15Hong Kong8.3 16Germany8.0 18Ireland7.4 20Belgium / USA7.3 24Barbados6.7 26Macau6.6 28Malta6.4 31U.A.E.(Bahrain/Dub ai/RAS) 6.2 Country rank African countries 2006 CPI score 156Chad / DCR / Sudan Cote d’Ivoire / Equatorial Guinea Angola / Congo Kenya /Nigeria / Sierra Leone Cameroon / Niger Burundi / CAR / Ethiopia / Togo 2.4 the geography of corruption Transparency International’s Corruption Perceptions Index: 2006