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Estimates on illicit flows to and from developing countries

Our friends at Global Financial Integrity have released their latest report on what they estimate to be the latest figures from 150 countries on illicit financial flows to and from developing countries for the period 2005-2014. Most of these flows arise from fraudulent trade mis-invoicing which, as they point out, adversely affects the lives of real people:

“The massive flows of illicit capital shown in this study represent diversions of resources from their most efficient social uses in developing economies and are likely to adversely impact domestic resource mobilization and hamper sustainable economic growth.”

Flows

Interestingly, in addition to the estimated outflows GFI has looked at, this report also estimates illicit inflows to developing countries:

“Illicit inflows frequently occur when imports are under-invoiced for the purpose of evading customs duties and VAT taxes. The magnitude of estimated illicit inflows in the latest year (2014) ranges from $1.4 to $2.5 trillion. This large range reflects the fact that more precise calculations are difficult to make using available data.”

Is tax avoidance at the heart of Ireland’s economic miracle?

Coming out of the economic crisis Ireland was one of the best performing economies, with GDP growth rates of 8.5% in 2014 and an extraordinary 26.3% in 2015. But how much of this economic activity was real, and how much a fiction created by Ireland’s tax haven status? A new paper by Heike Joebges of the University of Applied Science in Berlin considers the evidence.

Beware the siren song of “tax certainty”

Back in July the G20 club of powerful countries issued a communiqué in which they enthused about “the benefits of tax certainty to promote investment and trade,” and they mandated the OECD and the IMF “to continue working on the issues of pro-growth tax policies and tax certainty.”

It’s taken as a given that something called ‘tax certainty’ is a wholesome thing. Here’s the Association of Chartered Certified Accountants (ACCA) giving it the old motherhood-and-apple-pie:

“Certainty, along with simplicity and stability, is one of the cornerstones of a good tax system: but why is it important? How can policymakers encourage certainty?”

UN report recommends: go after tax havens, and protect whistleblowers

From the United Nations General Assembly, the fifth report of the Independent Expert on the promotion of a democratic and equitable international order. The summary goes like this:

“The report focuses on impacts of taxation on human rights and explores the challenges posed to the international order by widespread tax avoidance, tax evasion, tax fraud and profit shifting, facilitated by bank secrecy and a web of shell companies registered in tax havens. The Independent Expert calls for resolute action by the international community, including through the creation of a United Nations tax cooperation body, the adoption of a United Nations tax convention, the phasing out of tax havens, the revision of the Guiding Principles on Business and Human Rights to include the obligation of corporations to pay their fair share of taxes and the adoption of a financial transactions tax.”

As you can imagine with an introduction like this, here’s a lot of tax justice stuff in here, and TJN gets a number of mentions. It follows our earlier blog on calls by Rafael Correa, head of the G77 group of developing countries, for an international tax body. Among other things, the UN Independent Expert on the promotion of a democratic and equitable international order discusses the definition of ‘tax havens’ and refers to TJN’s alternative term ‘secrecy jurisdiction’ while providing further details on TJN’s Financial Secrecy Index (FSI) and the top listed jurisdictions on the FSI 2015 here (p9 and in the annex).

We’ll highlight only this section below for now, which is a recommendation for the following:

Report: new data disproves US corporations’ false narrative on taxes

From Americans for Tax Fairness, a major new report about corporate taxes in the United States. It’s called Corporate Tax Chartbook: How Corporations Rig the Rules to Dodge the Taxes They Owe, and it contains many useful facts, such as this:

  • Corporate profits are way up, and corporate taxes are way down. In 1952, corporate profits were 5.5 percent of the economy, and corporate taxes were 5.9 percent. Today, corporate profits are 8.5 percent of the economy, and corporate taxes are just 1.9 percent of GDP.
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