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Tax evasion by western companies in poorer countries expands poverty in poorer countries! Is this a news theory or a recycle of old news?

Wednesday, 05 October 2011
Every year about Skr8000 billion is lost from the developing countries of the world into hidden secret bank accounts abroad. This is ten times as much as the world's total economic aid to those countries. Most of the money is hidden away in tax havens by multinational corporations. This news has been echoes again recently but is this new news?

It is not the first time that this view has been raised but the effect is that nothing is being done about its. This world will be a richer and better place if tax evasion in poorer countries was tackled but that is so hard to deal with.

Many poor African countries for example, are very rich in natural resources such as oil, gold and other precious minerals. These are extracted in most cases by Western companies which also know how to sell them or used them in their production. These materials are therefore vital and are of economic significance to these countries. But are they?

“By only accounting for a small percentage of the revenue to both African countries and the parent company’s countries like Sweden and France, they end up paying very little in  taxes by the multinational corporations," says Léonce Ndikumana, a professor of economics at the University of Amherst, Massachusetts, and former research director at the African Development Bank.

On Monday, he was in Stockholm to attend a seminar organized by the NGO ActionAid, Diakonia, Concord and Forum Syd. The focus of the seminar was the large outflow of capital from developing countries to major corporations in the rich part of the world. The problem has been described as "the ugliest chapter in the global economy since slavery."


Scientists and NGOs have been able to show that companies knowingly conceal how much money they earn on their activities in developing countries. It is primarily the African countries that are most affected by the tax losses that such a false financial statement results.

“Many African countries have vast natural resources, but only a small portion of the profits stay in Africa. Companies' financial statements are not correct. They under state revenues and this has to do with a large sums of money lost through illegal ways,” said Léonce Ndikumana.

The multinationals save or invest their money banks in tax havens, where the lack of transparency makes them inaccessible.

“We need to push for global agreements on increased transparency of tax havens. Wealthy people and big banks are lobbying against it, but the EU is pushing the issue hard,” says Léonce Ndikumana.

The EU Commission is preparing a bill on for their companies to present clear information on their accounting for industries in the mining sector. It will be presented to Parliaments of member governments in the autumn. Today many multinational companies presents revenues in the mother country and revenues in other countries are often summarized under a common heading.

Sweden is one of the world's largest aid donors as a share of GDP to the poor countries but the Swedish Government attached very little attention to the problem of illegal capital outflow from developing countries.

Foreign leaders like U.S. President Obama, French Prime Minister Nicolas Sarkozy and former British Prime Minister, Gordon Brown promised to take action.

“If African countries were able to retain these tax dollars, they would not need so much assistance. Then the Africans would be able to keep their money and use them,” says Léonce Ndikumana.

But the idea that the Africans would be taking care of their own business and not relying on the western economies for economic aid or some form of control will hard resonate well in some western places such as Sweden. This could be why Sweden rely most on giving rather that assisting the African countries to be self reliant.
By Team

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