Taxing solutions: ActionAid calls for tightened corporate tax laws

ActionAid welcomes Gordon Brown’s initiative to reduce world poverty – the Call to Action – and recognises that corporations must be involved in the challenge.

But the charity says that the UK and other governments are missing a crucial opportunity to raise billions of dollars for the world’s poorest people by not tightening corporate tax laws. 

On the day the prime minister asks leading businesses to join him in the fight to end extreme poverty by 2015, a new ActionAid report charges that loss of potential tax revenue, for example, through legal tax avoidance schemes by multinational companies, is proving to be a critical issue for developing countries.

Tax is the most reliable and consistent income for governments, used to provide health and education services, and to invest in the infrastructure vital for socio-economic growth. Yet ActionAid’s research suggests a possible shortfall of billions of dollars in corporate tax revenue for the developing world. 

ActionAid took a sample of 14 UK and US-based companies, all of which support the Business Call to Action, launching today, 6 May. The charity used these companies’ published accounts to estimate how much tax it would expect them to pay worldwide if their profits were taxed at the corporate tax rate in their home countries.  

ActionAid has estimated what the tax liabilities of the 14 companies would be if their declared profits, excluding goodwill charges, were taxed in this way.  

The gap between this hypothetical tax bill and the tax actually paid averaged out at $6.3 billion a year, enough to ensure that every child in the world who is not currently receiving a formal primary education gets into school.  

ActionAid wants to see loopholes closed, and more information in company accounts so that it is easier to identify what multinational companies are doing to reduce their tax bills.  

Jesse Griffiths, lead author of the report said: “Getting companies to pay more tax in developing countries represents an open goal that could make a vast difference to raising the public finances needed to meet the Millennium Development Goals. We hope those companies that want to do their bit to end world poverty will support this move.”

The UN has estimated that meeting the Millennium Development Goals by 2015 will require $189 billion annually in additional assistance. With aid volumes likely to fall a long way short of providing this, measures to stop the haemorrhaging of vitally needed public funds through legal tax avoidance schemes are critical.