How countries are deprived of tax revenues

  • If all developing countries could increase the amount of tax raised to at least 15 per cent of national income, an additional US$200 billion per year would be available to governments, according to ActionAid estimates27
  • Southern countries lose out on an estimated US$160 billion each year as a result of trade-related tax dodging, according to calculations from Christian Aid.This is more than those countries receive in aid.28
  • From 1970 to 2008, total illicit financial outflows from Africa totalled between US$854 billion and US$1.8 trillion, according to research from Global Financial Integrity.29 This is between four to nine times the current levels of sub-Saharan Africa’s external debt.
  • The IMF estimated in 1999 that around US$4.6 trillion, or half of cross-border assets, were held in tax havens (secrecy jurisdictions).30

The previous sections explained some of the important functions of tax. The following sections go on to explore how governments are deprived of tax revenues. If tax revenues leak from an economy on a grand scale, this undermines the scope for tax to bring any of the potential benefits described in the previous sections. Lost tax revenue affects all countries, rich and poor, but the impact on countries in the South is demonstrably greater.Many southern countries are affected by a set of common domestic challenges. Revenue authorities are often weak and fail to collect the taxes they should; the size of the informal sector makes monitoring of economic activities and the collection of taxes a huge challenge; and corruption in governments and tax authorities undermines trust and diminishes the incentive for citizens to pay tax.

As if these challenges were not enough, on the international stage the odds are stacked against southern countries. Many southern countries face pressure to adopt domestic policies that can undermine their taxing rights. Some countries have been subject to conditionalities that promote a set of policies known as the ‘tax consensus’ which are highly regressive; tax competition results in countries lowering tax rates or offering tax holidays in the hope of attracting foreign investment. On top of this there is a lack of accountability regarding agreements signed with multinational companies (MNCs), particularly in the extractives sector.

Finally, it is clear that a lack of transparency facilitates grand corruption. Secrecy surrounding the operations of MNCs and the taxes they pay means that companies can easily avoid or evade taxes; and financial secrecy in tax havens makes it easy for individuals and companies to hide financial activities from governments in the South.

The following sections look at the domestic constraints to effective taxation, before addressing external pressure to change tax policy and, finally, financial secrecy leading to tax evasion and avoidance.

Domestic constraints

Weak revenue authorities and large informal sectors

The capacity of tax authorities in southern countries is an area that urgently needs improvement. Traditionally, few resources have been devoted to auditing and it is common for many companies in southern countries to declare losses for tax purposes with few investigations resulting. In addition, the capacity of a national tax authority in a southern country to effectively audit the accounts of a multinational is often extremely limited given the complex accounting practices MNCs can use to allocate profit and loss acrossa large number of subsidiaries in a range of countries. VAT evasion and even basic smuggling are also major problems for southern country tax authorities.

Given that in most southern countries a large proportion of the economy operates in the informal sector, the capacity constraints are all the more pertinent. If individuals and small businesses use cash transactions rather than bank accounts, it is difficult to monitor economic activity. At the same time, individuals and small businesses need to be motivated to register and pay tax. Necessary incentives might include protection of property rights, provision of services and support to save. It is the challenge of the informal sector that can lead governments to implement regressive VAT regimes, as it is easier to collect revenue from consumption than income.

In addition, southern countries generally have an extremely poor record with regard to the investigation and prosecution of tax evasion.?For example, in Guatemala, between 2001 and 2003, 1,295 tax evasion cases were presented before the courts. Of these only four resulted in the defendants being found guilty. In Honduras, a tax authority director went public about receiving anonymous threats over ongoing tax evasion investigations. Many southern countries do not even have a large taxpayers unit (which can reduce tax compliance costs and ensure uniformity in determining tax duties), never mind a dedicated team to track tax evasion cases. The impunity of large tax evaders is a major obstacle in countries where governance is weak, corruption is widespread and the political will to address such issues is non-existent.

This then undermines the willingness of ordinary citizens to contribute to taxes, as they see the wealthy dodging their responsibilities.31

Politicisation and corruption in revenue authorities

Within revenue authorities, as with any institution, there is scope for politicisation, corruption and mismanagement. For example, an Indonesian tax official who was just three years into his job was found to have an accumulated wealth of more than Rp100 billion (US$10 million) – impossible?on his monthly salary of about US$800.?An investigation and statements of the disgraced tax official included allegations that several companies linked to a major political figure had bribed the disgraced official in order to evade taxes. Several officials have been convicted in relation to this case.32

Cases of corruption such as this can undermine public trust in the tax system as well as morale within the revenue authority and can lead to lower levels of tax collection. Such problems are not confined to southern countries.

In addition to these domestic challenges, southern countries face external pressures and constraints in setting domestic policies that would enable them to raise revenue effectively. The international tax system equally represents the interests of the powerful.

External influence on tax policy

Tax competition – the race to the bottom

Tax competition has gone hand in hand with the increasing mobility of capital in a globalised world. Over the past three decades, nation states have tried to attract foreign direct investment through low tax rates and incentives and, in some cases, the promise of financial secrecy. The IMF, World Bank, regional development banks and the European Union (EU) have all, in varying ways through their private sector development work, promoted this trend, by encouraging the lowering of corporate tax rates or granting tax-deductible capital allowances for the mining industry, for example. These sorts of policies together are sometimes collectively described as the ‘tax consensus’.33

Proponents of tax competition argue that lower tax regimes are essential to attract the investors who will in turn provide jobs, revenue, technology transfer, infrastructure and linkages to domestic firms. However, the role of tax breaks in attracting foreign investors is highly questionable, with a number of cross-country studies concluding that the costs of tax incentives in terms of lost revenue frequently outweigh the benefits in terms of increased productive investment.34 The IMF is now more likely to advise countries to minimise tax exemptions and to ensure that the costs of all tax incentives are explicitly included in national budgets.

Companies attracted by such tax breaks have been regularly criticised for their, often, poor record in terms of worker rights or respect for the land rights of indigenous people. Such investors also often fail to bring the promised technology transfer or other linkages to domestic firms, particularly as World Trade Organization (WTO) requirements make it difficult for governments to oblige companies to do so. Not only does tax competition fail to guarantee inward investment that is pro- development but it is also anti-democratic, as it undermines the ability of electorates to choose between high-tax/high-spend and low-tax/low-spend governments.35 Ultimately, the winners from tax competition are the mobile MNCs that can play governments off against each other in order to secure the lowest tax rates. Ordinary citizens whose governments are deprived of vital revenues are the ones to lose out – and it is the poorest who suffer the hardest.



‘Tax competition’:

Tax competition is the process by which nations compete with one another to attract inward investment from international companies by offering lower tax rates or tax holidays, sometimes in ‘special economic zones’. Such tax incentives have been widely adopted across the world and are often described as leading to a ‘race to the bottom’.

Special economic zones and maquilas

Governments often grant these extended tax breaks through establishing special economic zones (SEZs), which are geographical regions that have different tax laws to the rest of the country. The category ‘SEZ’ covers a broad range of more specific zone types, including free trade zones (FTZs), export processing zones (EPZs) and free zones (FZs). Maquilas (otherwise referred to as ‘maquiladoras’) are individual factories that operate according to similar terms to SEZs.

In general, SEZs and maquilas have a poor reputation in terms of their labour standards and their record of displacing indigenous people from their land. As citizens agitate to redress these injustices, many also build tax justice into their campaigns.

Tax breaks in the extractives sector

Another area in which tax breaks cost southern countries dearly is the mining and minerals sector. Mineral extraction is renowned for its poor social and environmental impacts. In addition, industrial mining companies are particularly known for failing to create linkages into the local or national economies that would stimulate more private sector development and job creation. This is because foreign mining companies import most of their mining equipment, as well as the technical, financial and managerial services needed to run the mines. Then, once extracted, raw ore is usually exported for further refining or processing elsewhere. Moreover, given the capital-intensive nature of industrial mining, these companies create relatively few jobs. This is why there is a widespread view that the paramount development benefit of mining in Africa is the potential to generate public revenue through tax. Government revenue in the form of royalties, fees and various direct and indirect taxes is potentially a major source of income for governments of countries rich in natural resources.

However, extremely widespread tax breaks mean that this primary benefit too often fails to materialise. Too many MNCs have demanded and received massive tax and royalty concessions from governments as the price of setting up operations. These tax deals are usually made in secret between companies and governments through contracts that often override national tax laws.
This kind of treatment in turn encourages corruption, as secrecy makes it extremely difficult for civil society, parliaments and others to monitor the revenue from extractives and how this money is spent through the budget.38

Trade liberalisation leading to lost trade taxes

Trade liberalisation is another major avenue through which southern countries have faced diminished tax income. Many southern countries rely heavily on taxation of imports, because such taxes are relatively easier to collect and less costly to administer than other forms of taxation. The proportion of a government’s overall revenue that comes from these taxes can be up to one-third, or in some countries even higher.

However, many countries have progressively lowered tariffs during the past couple of decades as a result of World Bank and IMF conditionalities and donor ‘advice’, which has in turn reduced their tax income. And today, bilateral and multilateral free trade agreements threaten to impose additional severe reductions in southern countries’ income from tariffs. For example:

  • Based on figures from the United Nations Conference on Trade and Development (UNCTAD), ongoing multilateral negotiations in the context of the WTO Doha Round could result in losses of up to US$64 billion for southern countries, through lost import tax revenues on industrial goods.42 This is four times the amount that the World Bank predicts southern countries would gain as a result of increased trade.43
  • Free trade agreements being negotiated, or in some cases recently concluded, between the EU and groups of African, Caribbean and Pacific (ACP) countries (known as economic partnership agreements, EPAs) would also impose serious revenue losses for particularly vulnerable countries as a result of foregone trade taxes. Côte d’Ivoire is predicted to lose an estimated US$83 million per year, equivalent to its current health spending for half a million people.44

The IMF and others have strongly argued, as part of the ‘tax consensus’, that trade taxes should be replaced with VAT. However, we highlighted earlier that VAT tends to be a regressive tax. In addition, research from the IMF itself has shown that the introduction or expansion of VAT has not generated levels of tax income of anything like the magnitude that would compensate for the lost trade taxes. In least developed countries, VAT and other forms of taxation only make up for about one-third of the taxes foregone through lost trade taxes, according to the IMF’s estimates. This means less revenue for spending on social services.

‘There is no adequate legislation governing transfer pricing in Mozambique. …When there is a request for transfer pricing placed with the tax authorities nobody knows how to deal with the request… It is therefore easy for multinationals to take advantage, to exploit the weak capacity of tax authorities and the lack of regulation governing transfer pricing.’
— A former revenue official and former employee of one of the ‘Big Four’ accountancy firms in Mozambique

Financial secrecy leading to tax evasion and avoidance

We have explored how governments offer low tax rates, tax breaks and tax holidays in an attempt to attract investment. We have also seen how foregone trade taxes present a further strain on government coffers. As if these practices did not already drain enough domestic resources, further leakage of potential revenue occurs through international tax evasion and avoidance, which is facilitated by financial secrecy. There are a number of techniques for avoiding tax.46



‘Tax avoidance’:

The organisation of finances or accounts in such a way as to minimise declared income and therefore pay as little tax as possible – often through finding and exploiting loopholes in different countries’ legislation. This is legal.

‘Tax dodging’:

A legally imprecise term which is often used by tax justice campaigners when it is not clear whether tax is being avoided or evaded.

‘Tax evasion’:

Illegal or fraudulent non-payment or underpayment of taxes.

Abusive transfer pricing

It is estimated that 60 per cent of international trade occurs within MNCs, as different subsidiaries sell goods and services to each other.47 Although tax dodging is not restricted to multinationals, these companies with multiple subsidiaries operating in different countries can more easily manipulate their taxable profits. One of the key mechanisms through which multinationals get away with non-payment of what they owe to governments is through manipulating the prices that are charged for goods and services within the company but across borders.

Transfer pricing is the system of pricing transactions between related parties, for example sister companies within the same commonly controlled group of companies. MNCs run their businesses on an international basis, and a sale of goods or services to a customer in one country will often involve group entities in several other countries in the supply chain. The problem is how to allocate the cost of producing and selling the product or service and the profit earned on the sale.

International regulations require companies to price goods and services to related companies as if they were unrelated and trading in the open market. However, often it is difficult to determine what a market value for a product is. In this context, a company can set the sale of goods and services by affiliated companies within an MNC to each other at artificially high or low prices.
The companies can therefore often allocate the profit between the trading subsidiary companies in such a way that a minimal amount of tax has to be paid.

Where this occurs within companies, tax justice campaigners often term this ‘transfer mispricing’. A similar practice where unrelated companies make deals with one another to manipulate the price is called ‘false invoicing’. Together these are often termed ‘trade mispricing’. It is estimated that around 50 per cent of trade transactions in Latin America and 60 per cent in Africa are falsely priced by an average of more than 10 per cent.48

The victims of trade mispricing are all too often poorer countries where the revenue authorities have neither the expertise nor the resources to monitor or prove what is happening. Secrecy and lack of transparency in financial reporting make it incredibly difficult for under-resourced tax authorities to work out what tax is due to them, because companies are not obliged to report their profits and that of their subsidiaries at all national levels to the governments in whose jurisdiction they operate. On the other hand, MNCs have the resources to carry out complicated global transactions and procedures which tax administrators in southern countries may find difficult to trace.

It is not just the lack of transparency in corporate reporting that facilitates tax evasion and avoidance, but also the lack of cooperation between countries when it comes to sharing tax information. Secrecy jurisdictions undermine the ability of governments to collect revenues by allowing companies and individuals to harbour assets on their shores, away from the eyes of the tax man.



‘Transfer pricing abuse (often referred to as ‘transfer mispricing’)’:

This involves the manipulation of prices of transactions between subsidiaries of multinationals or, more specifically, the sale of goods and services by affiliated companies within a multinational corporation to each other at artificially high or low prices.

‘False invoicing’:

This is a similar practice to transfer pricing abuse, but between unrelated companies. Two companies may conduct a transaction for which there are two invoices – the ‘real’ one, which shows how much was actually paid, if at all, for the goods or services; and an ‘official’ one, which is given to revenue and customs officials. The official invoice shows a fake quantity or price.

‘Trade mispricing’:

This is the term to cover both transfer pricing abuse and false invoicing.

Losses from trade mispricing

Christian Aid estimates losses to southern countries as a result of trade mispricing to be in the region of US$160 billion.The following are examples of what this means at a country level:

  • In 2007, Bangladesh lost an estimated US$172.6 million in tax revenue as a result of trade mispricing involving trade with the EU and the US, in significant part attributable to its knitting and crocheting apparel industry. Growth in this sector exceeded all expectations in 2007 in spite of rising costs because of energy price increases.To facilitate this growth, the government invested in technical as well as financial support to help exports.Yet it lost out on much-needed tax revenue because of trade mispricing.49
  • In the same year, Vietnam lost US$171 million of tax revenue and Pakistan lost US$152 million.50
  • Kenya is estimated to have lost around US$2 billion between 2000 and 2008 to illicit outflows of capital, equivalent to about 70 per cent of the country’s 2010/11 development budget of US$2.7 billion. There are likely to be significant tax losses as a result of this level of capital flight. Kenya Revenue Authority (KRA) has been investigating a number of multinationals, including the country’s three largest flower companies, for abusive transfer mispricing, as the practice is believed to account for a significant proportion of these illicit outflows. According to Mr John Njiraini, the KRA commissioner of domestic taxes in charge of the large taxpayers: ‘We have seen cases of multinationals reporting losses in Kenyan subsidiaries while their parent firms are making huge profits. We are investigating whether they have abused their transfer pricing policies.’51

Country-by-country reporting

It is crucial that companies are transparent about their operations in all the countries in which they operate. Country-by-country reporting is a tool to make MNCs more transparent. As we have established, tax avoidance is a worldwide problem. It involves the abusive exploitation of gaps and loopholes in domestic and international tax laws that allows MNCs, in particular, to shift profits from country to country, often to or via tax havens, with the intention of reducing the tax they pay on some or all of their profits.Tax avoidance on such a large scale worldwide is made easy by a lack of transparency in the way MNCs report and publish their accounts. Making MNC accounts more transparent would help civil society and governments hold them to account for the taxes that they pay, and the extent to which these correspond to underlying economic activity. This proposed standard, which originated with theTax Justice Network, is now supported by the EU and has reached the attention of the OECD, the UNTax Committee and other international bodies.

Secrecy jurisdictions (commonly known as tax havens)

Secrecy jurisdictions facilitate the tax dodging outlined above. There are between 50 and 72 of these secrecy jurisdictions in the world, which allow companies and wealthy individuals to hide assets and avoid tax by refusing to effectively exchange information with other countries.
The Tax Justice Network estimates that the total sum of money held ‘offshore’ is around US$11 trillion, resulting in an annual tax loss of US$255 billion. Secrecy jurisdictions deprive the exchequers of rich and poor countries, but they have an immeasurably greater impact on southern countries that can ill afford the losses. In some cases they can provide a hiding place for bribes paid to governments, or assets siphoned from a government’s budget.

Secrecy jurisdictions also allow MNCs and wealthy individuals to set up ‘trusts’ into which money is paid. The identity of those paying money into these tax havens is hidden, as is the identity of those with access to them. This means that if tax is liable on this income, the country where the tax is due may never know.

Automatic tax information exchange

A number of NGOs are also calling for a multilateral agreement on automatic tax information exchange to end the secrecy of tax havens, which makes tax dodging possible.This agreement would mean countries automatically sharing information on citizens or companies holding assets on their shores, with the country where that asset originated or where the citizen is resident. It would equip countries with timely information about where tax abuse is likely to be taking place and therefore where further investigation is needed.

As demonstrated throughout this chapter, tax policy has a substantial impact on many of the core concerns of CSOs, from ensuring the availability of funds for important social programmes to narrowing the gap between rich and poor. In many countries, tax debates are dominated by businesses and wealthy individuals.Their concerns are often different to those of civil society more broadly.Yet decisions on revenue issues are some of the most important that a government makes. It is vital that civil society be in a position to offer its perspective on tax policies so that it can help broaden the debate and influence these policies and the impact they have on all citizens.
  • Case Studies

    Maquilas in Guatemala

    Case Study

    Maquilas in Guatemala

    Latin America is a region with an appallingly poor tax record, extremely low levels of tax collection (on average around 16 per cent of GDP) and regressive tax systems. Guatemala is one of the region’s worst performers. According to the Guatemalan tax authority, the country collected only 11.3 per cent of its GDP in tax in 2008.

    One reason for its extremely low tax collection is the country’s generous tax incentives. Since legislation was passed in 1989, companies that qualify for ‘maquila’ status are exempt from import duty, income tax, taxes on the repatriation of profits, VAT, asset taxes and municipal taxes. The term maquila refers to the textile sector, but Guatemala’s legislation has been repeatedly expanded, meaning that many more companies benefit from concessions. While the benefit is supposed to be temporary in nature – for example income tax exemptions are for 10 years – the practice prevalent in Guatemala is for businesses to close and then reopen with another address.This way they can apply again for exempt status.

    These tax concessions have a huge fiscal cost.The tax authorities calculated losses under the maquila legislation as reaching US$524 million in 2005.This represents a huge chunk of Guatemala’s tax take – 15.9 per cent of total tax collected that year.The practice of gathering and publishing this data has since been abandoned, but currently costs would be much higher as a law modifying the maquila regime was adopted in 2004. It has allowed many more companies to be able to apply for maquila status and benefit from the exemptions. Companies qualifying as maquilas include Colgate Palmolive C.A., Kellogg C.A. and Nestlé Guatemala as well as many other well-known, national firms. A Guatemala CSO, CIIDH, has been monitoring the tax issue and advocating for tax reform for a while. It now says that: ‘The law no longer even resembles a law to promote investment and has now become a mechanism which firms can use to avoid paying taxes.’

    Reference no.36

    Special economic zones in India

    Case Study

    Special economic zones in India

    In India, SEZs are being set up across the country since legislation was passed in 2005. Activists in India have protested against the SEZs because they say that farmers are being forced off their land, with little or no compensation, to make way for MNCs building factories and industrial parks. In addition to these problems, the excessive tax breaks offered by the SEZs deprive the government of revenue that could be used for social spending.

    Companies operating in the SEZs get total tax exemption for the first five years, 50 per cent for the next two years and up to 50 per cent exemptions on profits that are reinvested for another three years.

    The Indian Ministry of Finance estimates that in 2008/09, foregone corporate income taxes amounted to 69,000 Crore Rupees (approximately US$15 billion), as a result of tax exemptions in SEZs as well as other corporate tax deductions.

    Jayati Ghosh, professor of economics at Jawaharlal Nehru University and director of International Development Economics Associates, says: ‘People are rightly upset about the land-grabbing that is going on for SEZs. But we have to face the reality that there is going to be change in land use as India develops. What is important is how you compensate and rehabilitate those people who were on the land. …The real issue is that these tax concessions are obscene. Why should companies in SEZs pay no tax, while in India we still don’t have money for universal schooling? We spend only 4 per cent of GDP on education, instead of the aimed-for 6 per cent. If we had full payment of existing taxes we would have enough money to properly educate our children or for a public health centre in every village. …To give up such a huge amount of government resources is of course a major crime given the needs of Indian society today and in the future.’

    Reference no.37

    Zambian CSOs challenge mining tax exemptions

    Case Study

    Zambian CSOs challenge mining tax exemptions

    In Zambia, mining development agreements were negotiated with private mining investors who took over copper mines after the privatisation of the Zambian copper industry in 1998.They offered huge tax exemptions to mining companies – including setting royalty rates at 0.6 per cent and corporate income tax at 25 per cent, instead of the 3 per cent royalties and 30 per cent corporate tax specified in the Mining Act. Despite booming international copper prices between 2003 and 2008, these tax breaks have drained government coffers of much-needed revenue for development spending. In 2004, for example, the government collected only US$8 million in tax and royalty revenue from the copper mining industry.
    In 1992, a year when copper production and international copper prices were at similar levels to those in 2004, budget revenue from taxes and royalties was US$200 million, in large part due to higher tax collection from the mines.

    Civil society actors in Zambia, including the then Civil SocietyTrade Network of Zambia (CSTNZ), churches and trade unions, took up this issue.They published research reports, engaged parliamentarians and the media and raised the level of debate in the country on the issue of tax exemptions in the mining sector. Partly as a result of this successful civil society lobbying and campaigning, in 2008 the government decided to outlaw the special tax breaks granted to copper mining companies in the mining development agreements, requiring the companies to instead revert to paying the 3 per cent stipulated in the law. A special windfall tax was also introduced by the government, but it dropped this a year later under pressure from the mining companies, partly in response to the huge drop in international copper prices. While this setback reduced the overall tax revenue paid by the mining companies, in 2009 the finance minister reported that the government collected US$77 million in tax and royalty income from copper mining companies as a result of the new tax rates – a ten-fold increase compared to 2004.

    Reference no.39

    Foregone mining revenues in the Philippines

    Case Study

    Foregone mining revenues in the Philippines

    In the mid-2000s, the Philippine government began an aggressive push to develop the country’s mining sector.The government sees the country’s abundant mineral wealth, still largely buried underground, as potentially driving economic growth and sustaining it at a high level.

    The government has provided a number of fiscal incentives, including income tax holidays, in order to attract investors into the sector. Research from Action for Economic Reforms conducted in 2009 estimates that in 2004 foregone revenues as a result of these tax breaks ranged from US$66.8 million to US$244.2 million, which is 80 to 300 per cent of actual tax collections for the same year. If the highest estimate is used, foregone revenues from mining in 2004 would have amounted to 5.68 per cent of the national deficit.This is despite evidence that the determining factors for mining investors are the quality of minerals in the Philippines and their current prices, not the tax breaks, suggesting that the investments would have come anyway. 41

    The share of the total tax take going to local government has also been steadily declining. It is difficult to know the reasons for the decline, but one possible explanation is that the mining companies have been withholding payments to local government units as mining’s fortune has waned. For instance, the Marinduque Council for Environmental Concerns reports that Marcopper owes the provincial government more than US$20 million of unpaid real property taxes. Mining companies in ancestral domain lands also have a patchy record in the payment of royalties to indigenous peoples.

    Reference no.40

    The Stop EPA campaign highlights lost trade taxes

    Case Study

    The Stop EPA campaign highlights lost trade taxes

    When negotiations for EPAs started in 2002, civil society across ACP states and in Europe got organised and launched a campaign to ‘Stop EPAs’.The concerns with the proposed agreements included the predicted impacts on agriculture, industry and jobs – as countries would be forced to compete with European imports – as well as the ways in which EPAs would constrain governments from regulating their economies in the interest of development and poverty reduction. In addition, civil society and governments have been concerned that EPAs would deprive ACP countries of important tax income, without any guarantees that these losses would be compensated through alternative revenue streams.The EU has argued that the gap in revenue can be filled through aid in the short term, yet there are no guarantees that additional finance will be made available in a way that does not divert resources away from other important development programmes. Most worryingly, governments would be sacrificing a sustainable source of finance that can be generated year on year, for an increased dependency on EU development assistance that is likely to be short term if it even materialises. When EPA campaigners in Europe have raised this issue with European governments and in the European Parliament, it has been met with concern, as even those who believe in the benefits of free trade agreements tend to recognise that countries need sustainable tax income. Highlighting this issue has been one entry point for getting decision-makers to listen to the broader concerns about EPAs.

    Reference no.45

    The tax justice campaign in Europe

    Case Study

    The tax justice campaign in Europe

    Tax justice campaigners in Europe, includingTax Justice Network, Eurodad, Christian Aid, CCFD, MISEREOR and ActionAid, have been pushing for G20 governments to address the issue of transfer pricing abuse.The financial crisis of 2008 created an impetus for change in OECD countries and created an opportunity for NGOs and others to introduce the development impacts of financial secrecy, calling on world leaders to address the problem.The G20 committed to developing proposals to ensure that developing countries would benefit from the new cooperative tax environment.52

    The campaign has a real chance of success, with the EU and the OECD recognising the need to address the problem and appearing to take steps to do so.