The huge leak of confidential documents - the Panama Papers - has offered a window on a global tax system which makes it possible for vast sums of money to be hidden in tax havens. It is the world’s poorest people who are paying the price.
The latest in a string of tax scandals, today’s news yet again demonstrates that the international tax system is broken. Those with the means to do so are able to bend or break the rules on a huge scale, benefiting at the expense of ordinary people.
It's not just individuals who benefit from the global network of tax havens. Big companies can use some of the same offshore methods to reduce their tax bills in the UK, and in some of the poorest countries in the world.
The impact of tax havens on Africa
African countries are among those affected by these opaque flows of money.
The investigators behind the Panama Papers have revealed that an international oil company worked aggressively to circumvent a new tax in Uganda by moving its official address to Mauritius, the African tax haven of choice.
The company used the Mauritian tax treaty network as part of its tax planning. As ActionAid has shown, the global web of tax treaties makes it possible for multinational companies to unfairly slash their tax payments in poor countries.
The leaked data also reveals that a diamond business with interests in Sierra Leone, a country devastated by the Ebola outbreak, used tax havens to camouflage financial activities.
In Guinea, another Ebola-hit country, investigators uncovered the complex offshore corporate structures behind a mining company’s investment in the world’s largest iron ore deposit.
It is the poorest people and the poorest countries which have the most to lose from these murky tax dealings.
When money disappears into offshore accounts key public services such as schools and hospitals are starved of funding. Women and girls living in poverty are hit hardest when schools and hospitals can’t afford books and medicine. The IMF estimates that developing countries lose out on an astonishing US$200 billion a year in avoided corporate tax.
How can you help change the global tax system?
The global tax system is not fit for purpose. The principles underpinning it are a century old and it is not working for poor or rich countries. ActionAid is campaigning for this to change. We want the UK government to take a lead on reforming the global tax system to tackle tax dodging around the world.
ActionAid wants a tax system that works for poorer countries. They must be given the tools they need to ensure they can collect a fair amount of tax from big companies to invest in tackling poverty.
Photo credit: Amos Gumulira/ActionAid