WANT TO END POVERTY? CLOSE TAX HAVENS, EXPERTS SAY

by David Cronin

(IPS) BRUSSELS -- Tax havens in Europe are depriving poor countries of more money than they receive in development aid, it has been alleged.

Some $11.5 trillion is held in offshore accounts across the world, according to Tax Justice Network, a grouping of economists, accountants and academics. Because tax authorities are unable to touch this money, they effectively lose $250 billion per year: the equivalent of five times what the United Nations estimated in 2002 as needed to finance its Millennium Development Goals of reducing poverty.

John Christensen, the network's spokesman, argues that the European Union has a "slightly schizophrenic" attitude towards the problems posed by massive tax evasion and avoidance.

While EU institutions have been "leading the world" in taking some initiatives against tax competition, many of the world's most notorious tax havens are located within the EU or on the overseas territories of its member states, he noted. These include the City of London (the financial district of London), Luxembourg, the Cayman Islands, Jersey and Guernsey.

Christensen, who has previously worked in Jersey's banking sector, cited data from the University of Massachusetts suggesting that Africa has lost $607 billion because of capital flight -- or five times the amount it has received in development aid -- since 1970. Capital flight involves the movement of money from one country to another where a firm believes he or she will get greater returns.

According to Christensen, Britain is one of the main culprits in attracting capital flight by leaving financial services companies in the City of London to a significant extent unregulated. "The City of London is the biggest tax haven in the world," he said. "Britain is very happy to attract capital out of Africa, Asia and Latin America. And the City of London is not asking was this capital the proceeds of crime, embezzlement or fraud."

He voiced support for the EU's code of conduct group on business taxation. Founded in 1998, this requires EU countries and their dependent territories to desist from tax practices that are deemed harmful, such as offering special benefits to non-residents.

Last year the European Commission found that the Isle of Man, a tax haven off the British mainland, fell foul of the code. Christensen called on the EU to similarly refuse to approve Jersey and Guernsey as these two Channel Islands operate a similar tax regime to the Isle of Man, including a zero rate of corporation tax for many companies.

Christensen also urged the Commission to take heed of a request made by the European Parliament in 2007 that stringent rules on reporting be devised for firms working in the extractive industries such as mining or oil.

Parliamentarians have demanded that each firm should be required to publish accounts stating their turnover and what taxes they pay in each of the countries where they operate. Better rules in this area, Christensen said, would "radically reduce the ability of transnational corporations to shift profits out of developing countries."

Stephen Stork, a tax official in the European Commission, stated that the EU as a whole has limited powers in addressing matters of taxation. Responsibility for direct taxation rests primarily with the union's 27 national governments, rather than with the Brussels-based institutions.

Still, he said that the work of the EU's code of conduct group has proved fruitful and that the Union now strives to include clauses against tax practices deemed harmful in agreements on trade and political cooperation it signs with foreign countries. "The authors of the code of conduct knew that tax cooperation should not stop at borders," he said. "Capital is so mobile."

The European Network for Debt and Development (Eurodad), a Brussels-based alliance of anti-poverty campaign groups, complained that issues of financial justice are not being adequately addressed by the EU.

Although the Millennium Development Goals stipulate that the world's governments should devise stronger regulation for the international financial system, no proposals on this matter were contained in a European Commission paper on attaining the MDGs that was published Apr. 9.

Eurodad is frustrated by the slow rate of progress being made by the World Bank and International Monetary Fund in addressing the effects of tax evasion and avoidance on poor countries. In September last year, the World Bank's President Robert Zoellick said that he would be in favour of a study being carried out on "the development impact of offshore financial centers." But campaigners allege that not enough has been done to follow up Zoellick's statement.

Eurodad is also urging France, which will assume the EU's rotating presidency in the second half of this year, to insist that the surrounding issues are placed on the international agenda. Nicolas Sarkozy, the French president, asked the IMF in February to study the possibility of a worldwide tax on profits reaped by oil companies. But campaigners also bemoan how the French government has been supportive of tax havens in Monaco and Andorra.

"It is strikingly clear that there are huge gaps in the financial regulation system," said Alex Wilks, Eurodad's coordinator. "We are quite disappointed to see that the European Commission hasn't been ambitious enough in seeking to change the financial system to make it development-friendly. If proposals don't come from the European Union it is difficult to see from which other quarter we will get leadership in the months ahead."