This article is in a response to The Commentator. We asked for, and received, the right of reply but our response was not published.
It is a startling and depressing fact that developing countries lose three times more to tax havens than they receive in aid each year. It is a staggering indictment of some of our largest companies that the impact of British aid is effectively being undermined by aggressive tax avoidance by their operations in some of the world’s poorest countries.
Helping the developing world to increase their tax revenues not only helps to fund vital investments in teachers, doctors and infrastructure for business, in the longer term it is the only sustainable way for developing countries to become independent of international aid.
It is unfortunate then that yesterday's piece by David Davies MP – Are multinationals in Ghana really paying less in tax than market traders? – has fundamentally misunderstood ActionAid’s argument.
We share fully Mr Davies’ view – and that of many governments in Africa and elsewhere – that the only sustainable long-term path to ending aid dependency relies on a strong and healthy private sector. Much of our work is with independent farmers and those private business owners, such as Marta, to whom he referred in the article. There is no question at all of ActionAid ‘despising’ multinationals.
Where we disagree completely is with the notion that a multinational company simply providing jobs in a developing country removes the need for companies to pay their fair share of tax that is vital for any and every society in order to provide basic services, improve governance and, ultimately, break free from aid dependency.
Every company – as any business owner in the UK will tell you – is liable to pay taxes whether they be on their operating premises or on their profits. It is the systematic avoidance of these taxes by multinationals by shifting profits into tax havens around the world that lies at the heart of the problem.
UK based SABMiller generates profits of over £2 billion a year. In Ghana their brewery has increased its turnover year on year – but its own accounts show it paid no corporation tax at all in three of the last four years for which they are available.
What we found in Ghana isn’t an isolated instance. ActionAid estimates that SABMiller shifts £100 million from its operations out of Africa. The revenues lost to African countries would be enough to put an extra 250,000 children in school. It is this aggressive tax avoidance that George Osborne calls “morally repugnant” and against which African governments are beginning to take action.
The figures that are quoted as tax contributions by SABMiller in the article do not come from taxes borne by the company, but instead refer to the taxes paid by ordinary consumers paying VAT, alcohol excise duty and so on.
We believe it is wrong to claim that the tax paid by a customer in a bar who buys a beer constitutes a sufficient tax contribution from the brewery company that produced it. The money comes from the customer. In the case of SABMiller, taxes paid by customers account for 84 per cent of the taxes the company claims to pay, the rest is paid mainly by their staff.
Comparing an organisation like ActionAid to a multinational company makes little sense. There are many positive contributions multinational companies make to developing countries, that an aid charity, working directly with local communities to help them assert their basic rights, cannot possibly replicate.
Our money comes from our donors, not profits, and is not there to be spent on employing vast numbers of people. We spend our income primarily on locally-run projects that give communities access to things we in the UK might take for granted such as education, healthcare and access to food.
Were ActionAid a multinational company we would, of course, seek to increase our skilled local workforce and to extend as much as possible our investment in local communities. Were ActionAid a multinational company we would, of course, like those companies mentioned yesterday, point to our contribution to the local economy, direct or otherwise.
The crucial difference is this: were ActionAid a multinational company we would not deny developing countries the tax revenue they so desperately need, we would pay the commercial taxes we owe to the countries in which we operate in full.