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Inside Story

Tax avoidance: Legality vs morality

As another major multinational is accused of dodging millions in taxes, we look at the impact on the developing world.
Last Modified: 11 Feb 2013 10:49

A British company is the latest major multinational that stands accused of massive tax avoidance and depriving one of the world's poorest countries of billions of dollars.

The Zambian subsidiary of Associated British Foods has confirmed it paid virtually no tax in the past five years.

"This is a big British multinational company finding legal loopholes in national and international laws to aggressively lower its tax bill in a very poor country .... The company itself has a real responsibility to play fair in a country like Zambia. We think it should stop making these artificial transactions out of the country and pay its fair share of tax where it actually makes its profits."

- Chris Jordan, ActionAid

A report by ActionAid states the company's revenue from its Zambian operation is being funneled into tax havens including Ireland, Mauritius and the Netherlands.

The report says that Zambia Sugar generated profits of $123m since 2007, but paid less than half a percent in corporate tax. It estimates that Zambian public services lost $27m as a result of the tax avoidance - enough to put 48,000 children through school.
 
The report also said revenue lost to tax havens was 14 times the amount the UK gives Zambia in aid to combat hunger and food insecurity.

Associated British Foods' subsidiary company in Zambia issued this statement:

"We deny emphatically that Illovo is engaged in anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government."

Meanwhile, UK-based charity Christian Aid is also fighting what it calls a global culture of financial secrecy, through its Trace the Tax campaign.

"I think that corporations should pay their taxes and I think that individuals should pay their taxes, but it is very difficult to expect them to pay more than the law requires. And so we have to look at the laws and the tax jurisdictions that are in place, and right across the world ... This is a global issue and needs to be looked at as such."

- Stephen Barber, South Bank University

The group says it calculates that tax avoidance is costing poor countries $160bn a year. And for every $10 given in aid to the developing world, $15 is lost through tax dodging.

Christian Aid described the situation as stark and urgent, and called for greater financial transparency.

And the issue of tax avoidance is not only affecting the developing world.

In recent cases, Starbucks was accused of paying less than one percent in tax on more than $4.7bn in UK sales since 1998; Google was criticised for paying just $9.5m in tax on UK revenue of $625m in 2011; and Amazon paid no corporation tax at all last year, despite UK sales of more than $5bn.

Such forms of tax avoidance may be legal, but as aid groups are questioning: Is it morally right? And is this a trade worth having?

To discuss this, Inside Story with presenter Mike Hanna is joined by guests: Chris Jordan, the co-author of the ActionAid report on Zambia Sugar called 'Sweet Nothings'; Keith Boyfield, a fellow of the Institute of Economic Affairs; and Stephen Barber, a political economist from South Bank University.


TAX AVOIDANCE

  • Zambia Sugar funnels around a third of pre-tax profit to tax havens 
  • Zambia Sugar says globally it pays higher tax due to its company structure 
  • Zambia Sugar paid less than 0.5 percent corporation tax between 2007-2012 
  • ActionAid says Zambia Sugar did not pay corporation tax in 2008-2012
  • Governments are reacting to tax avoidance after public outcry 
  • Starbucks, Google and Amazon have faced public protests on tax avoidance

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Source:
Al Jazeera
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