Britain’s global tax treaty network is placing some of the world’s poorest countries at risk of losing millions of dollars in tax, according to a new report released by ActionAid.
The UK, together with Italy, tops a global league table ranking countries according to how many tax treaties they have that severely limit poor countries’ ability to collect taxes from multinational companies.
The UK, together with Italy, has more treaties with poor countries rated “very restrictive” than any other country in the world.
ActionAid’s ‘Mistreated’ report has for the first time revealed that the UK has 13 such treaties with poor countries, including Bangladesh, Zambia, and Uganda. This is the same number as Italy and more than all other richer countries including Germany, France, USA and Russia.
A major loser is Bangladesh – which in 2013 lost an estimated US$14.5 million as a result of a single clause in its UK tax treaty. This is a country where 66 million people live in extreme poverty - less than US$1.90 a day.
US$14.5 million is enough money to pay the annual salary for an extra 18,000 Bangladeshi teachers in a country where more than 4 in 10 girls are not in secondary school.
The report, which analyses more than 500 tax treaties, reveals for the first time how developing countries risk losing billions in tax revenue as unfair treaties with richer countries limit their ability to tax multinational companies. Bangladesh was found to be the poor country with the most treaties - 18 - which limit its ability to tax multinational corporations.
Tax treaties have played a part in most well-known cases of aggressive tax planning, such as in Google’s and Amazon’s tax schemes. ActionAid’s research shows how tax treaties risk leaving poor countries more open to a wide range of tax avoidance strategies.
ActionAid is calling on the UK Government to revise the treaties – which date back over a period of 50 years – to ensure British companies pay their fair share of tax in poor countries.
Savior Mwambwa, ActionAid Tax Power Campaign Manager, said:
“The global web of tax treaties is tying the hands of governments and severely limiting the ability of poor countries to tax global companies.
“It’s deeply concerning that the UK his one of the countries with the largest number of harmful tax treaties which make it possible for multinational companies to slash their tax bills in poor countries. If companies paid their fair share of tax, more could be invested in good quality hospitals and more doctors and nurses that could save lives and improve the health of women and girls living in poverty.
“ActionAid is calling on the UK government to take this opportunity to revise these treaties and ensure that poor countries are able to raise tax fairly to tackle poverty.”
Very restrictive tax treaties – countries with the highest number of post-1970 treaties that severely limit Sub-Saharan African and Asian countries’ taxing power:
Notes to editors
- The full report is attached and will be available here at 20:00 GMT: http://bit.ly/1QiIptZ
- The ActionAid research looks into the content of more than 500 binding tax treaties that low- and lower-middle income countries in sub-Saharan Africa and eastern and southern Asia have signed with other countries from 1970 until 2014. All tax treaties restrict the right to levy tax, but some treaties take away far more tax power than others. Our research identifies the treaties that remove more tax rights from poorer countries than most – known as very restrictive treaties.
- IMF research estimates that developing countries may lose $200 billion a year to corporate tax avoidance - see p21, Fig 3 https://www.imf.org/external/pubs/ft/wp/2015/wp15118.pdf
- The cost of tax treaties : The total cost of tax treaties to developing countries has not been established. The Dutch Centre for Research on Multinational Corporations (SOMO) has estimated that developing countries lost €770 million in 2011 as a result of treaties with the Netherlands, and the IMF estimates that US tax treaties cost non-OECD countries around US$1.6 billion in 2010. These losses are only take two rules in tax treaties into account; lost profit taxes and capital gains taxes are for example not included.
- The US$14.5m lost to dividend tax restrictions in the UK-Bangladesh treaty could have paid for 14,500,000 / 796 = 18,216 teacher salaries for a year. The starting salary for a teacher in Bangladesh is US$796: http://bdnews24.com/bangladesh/2014/03/09/primary-teachers-post-pay-upgraded.