TAX HAVENS: RELEASING THE HIDDEN BILLIONS FOR POVERTY ERADICATION EXECUTIVE SUMMARY Tax havens and offshore financial centres (OFCs) have seldom figured as prominently in media coverage of economic affairs as they do today. Interest has focussed on the concerns of northern governments and the interests of powerful transnational corporations (TNCs). The main actors in the debate are revenue authorities, corporate lawyers, tax accountants and financial journalists. By contrast, the world's poorest countries are conspicuous by their absence. This is unfortunate because offshore tax havens represent an increasingly important obstacle to poverty reduction. They are depriving governments in developing countries of the revenues they need to sustain investment in basic services and the economic infrastructure upon which broad-based economic growth depends. This paper argues that off-shore centres are part of the global poverty problem - and that the interests of the poor must be brought onto the reform agenda. It is impossible to calculate the financial losses to developing countries associated with offshore activity. Secrecy, electronic commerce and the growing mobility of capital have left all governments facing problems in revenue collection. The borderline between tax evasion and tax avoidance is becoming increasingly blurred. But at a conservative estimate, tax havens have contributed to revenue losses for developing countries of at least US$50 billion a year. To put this figure in context, it is roughly equivalent to annual aid flows to developing countries. We stress that the estimate is a conservative one. It is derived from the effects of tax competition and the non-payment of tax on flight capital. It does not take into account outright tax evasion, corporate practices such as transfer pricing, or the use of havens to under-report profit. Revenue losses associated with tax havens and offshore centres cannot be considered in isolation. They interact with problems of unsustainable debt, deteriorating terms of trade, and declining aid. But there is no doubt the implied human development costs of tax havens are large. The US$50 billion loss is equivalent to six times the estimated annual costs of achieving universal primary education, and almost three times the cost of universal primary health coverage. Of course, ending the diversion of resources from governments into corporate profit margins and offshore bank accounts provides no guarantee that the funds released will be used for poverty reduction purposes. This will depend on governments developing effective poverty reduction strategies. But allowing current practices to continue will undermine the successful implementation of such strategies.
OXFAM GB POLICY PAPER - TAX HAVENS: RELEASING THE HIDDEN BILLIONS FOR POVERTY ERADICATION