21 January 2011
“Every year developing countries are losing ten times the amount of Official Development Assistance (ODA) remitted for poverty alleviation and economic development,” said GFI director Raymond Baker. The report can be accessed at the Global Financial Integrity (GFI) website.
An earlier report from the UK based Christian Aid explained how trade mispricing is used by multinational corporations to reduce or completely avoid their tax liabilities. With multinationals, a system called transfer pricing covers the sale of everything between subsidiaries of the same parent company which could include intangibles such as intellectual property rights, management services and insurance.
As long as the subsidiaries of the same multinational charge each other a fair market price such transactions are perfectly legitimate, however, with 60 per cent of world trade now taking place within, rather than between, multinational corporations, the way fees are determined has become increasingly opaque and the figures can be manipulated to reduce tax.
What makes this a matter of concern for all of us is the impact such tax dodging has on the global economy. Poor countries in particular are deprived of badly needed tax revenues – estimated by Christian Aid to be of the order of US$160 billion per year. Money which if directed to health services could save the lives of 350,000 children under the age of five every year.