Tax abuses robs poor countries of more than $400bn a year

Abusive tax practices include ‘damaging’ Ireland-Ghana tax agreement.

Poor nations are being robbed of revenues worth $416bn a year by abusive and harmful tax practices by companies and wealthy individuals exploiting tax loopholes to avoid paying tax, Christian Aid has estimated in a new report.

The report, Trapped in Illicit Finance- launched ahead of the UN General Assembly’s High-Level Dialogue on Finance for Development (New York, Thursday 26 September), also includes damning details of the Ireland-Ghana double tax agreement.

The agreement contains a number of provisions that will allow companies to significantly reduce their tax bill in Ghana when shifting money between Ghana and Ireland. The agreement, for example, cuts the withholding tax on royalty payments to Ireland from the domestic rate of 15% to 8%. Similarly, rates on technical service fees are cut from 20% to 10%. Cutting rates on royalty payments to Ireland is particularly significant as Ireland is Europe’s primary conduit for profit shifting via royalty payments.

Controversially, a freedom of information (FOI) request by Christian Aid Ireland revealed Ireland’s Department of Finance and the Revenue Authority ignored the advice of officials from the Department of Foreign Affairs and Trade to not proceed with the agreement or push for lower rates of withholding tax on royalty payments flowing from Ghana to Ireland.

Sorley McCaughey, Christian Aid Ireland’s head of policy and advocacy, said: 'Intentionally targeting a developing country to sign a tax treaty flies in the face of findings of the government’s own analysis, the advice of the Department of Foreign Affairs and Trade and even the IMF who recommend developing countries not to sign double tax agreements with rich countries. It is difficult to justify pursuing this damaging treaty when all the evidence suggests it will not in itself promote investment in Ghana but will certainly hurt Ghanaian efforts to raise badly needed taxes.'

The new report urges developed nations and the UN to stop tolerating the abusive flows of money that rob the poor to enrich the wealthy. It presses richer governments to widen their ‘legalistic’ definition of illicit financial flows beyond just illegal flows of money – such as those related to laundering, the drugs trade, tax evasion or corruption. They are now being asked to embrace a broader, human rights-based definition that encompasses immoral and harmful flows of funds.

'Viewed through a human rights lens, Ireland’s tax treaty with Ghana would be considered abusive, and would not proceed in its current form. What matters is not whether flows of money or tax practices are legal, but whether they are abusive,' said Mr. McCaughey.

To read the report or for further information contact Paul Donohoe, Christian Aid Ireland’s head of media and communications on pdonohoe@christian-aid.org +447779624385.

Ends

Footnotes

  • Christian Aid estimates that $416 billion a year lost through commercial tax-related illicit financial flows.This includes corporate tax abuse ($200 billion), tax lost due to mispricing ($158 billion) and untaxed offshore wealth ($58 billion).
  • Ireland and Ghana signed the double tax agreement in February 2018, which was approved by the Irish Parliament in October 2018. It still requires approval by the Ghanaian parliament before it comes into force.
  • In October 2018, Christian Aid Ireland received a series of emails, memos and minutes from 2012-2016 released by Department of Foreign Affairs and Trade under a Freedom of Information request.
  • The Government’s Spillover Analysis (2015) concluded there was no difference in levels of trade flows between countries with whom Ireland had double tax agreements and with those they didn’t.
  • Ireland is the biggest direct foreign investor in Ghana, equivalent to a third of all direct foreign investment.
  • While Ghana is Africa’s second-fastest growing economy, 4 million Ghanaians live in poverty and 5% of Ghanaian children die before their fifth birthday.