I am just half way through my internship here at Oxfam Novib
but I can already say this has been and will be for the remaining half of the
time a very valuable experience. For me the purpose of this internship was to
experience how working in an organization was like and how I could put the
skills I learned in University to the test. The opportunity Oxfam Novib
provided allowed me to combine this goal with my urge to tackle inequality and
injustice in the world. You can imagine I was already really excited to start
I dove into the world of tax havens, because that is the
main subject I would be handling here at Oxfam Novib. Other than my introduction
course to political economy I was not really an expert in and economy and
taxation. Not implying that I am an expert now, but in the last couple of weeks
I became familiar with a lot of knowledge regarding these subjects. The problem
of tax havens be a bigger problem that I already thought. Because I experienced
that a lot of people are not aware of the problem or not aware of the scale of
the problem, I will devote this blog to give you a little impression on tax
Tax havens are countries with an extremely low tax rate on
corporate income or have a tax regime that enables companies to have a very low
effective tax rate(for example tax holidays granted by the cantons of
Switzerland). In combination most of these tax havens have a high level of financial
secrecy. This creates a perfect environment for companies that want to minimize
their tax bill.
All sorts of financial and corporate structures are used to
shift profits from where the profits are made to these tax havens. In this way companies
avoid paying taxes in the country where the profits are made and are only
paying the low or zero tax rate in the tax havens. All this is not illegal and
is used by a lot of large multinational companies. However the effect of this
profit shifting is very damaging to countries and developing countries in
particular. Countries lose a lot of revenue due to profit shifting that could
be used for other purposes.
Although it is impossible to calculate
the amount of money that is lost due to profit shifting it is estimated that Developing countries lose around US$100bn annually in tax revenues as a result of corporate tax
avoidance schemes that route investments through tax havens – equivalent to the
amount required to provide safe drinking water and sanitary facilities for 2.2
billion people each year.
In real life…
To illustrate how companies manage to shift their profits to tax havens
and how this affects developing countries I will present a case. This case is
about MTN. You might have never heard of MTN before but it is one of the
largest telecom providers in Africa. A report by Finance Uncovered revealed how
it shifted profits from various African countries to a subsidiary in Mauritius.
What stood out was that MTN companies in
Uganda, Cote d’Ivoire
and Nigeria made
substantial payments to an offshore entity of MTN located in Mauritius. Which
is odd because the office in Mauritius has no employees and is practically just
a mailbox. In the books these payments are reported to be for management and
technical services provided to the companies. MTN itself claims the entity in
Mauritius collects the money these companies are owed for management and
technical services conducted by MTN in South Africa. The company will not say
why the money is sent to Mauritius instead of to South Africa. But we can
imagine why the company routes the money through Mauritius. Mauritius has a
corporate income tax rate of 3% rate for companies qualified as global
business companies. In
this way MTN avoids paying taxes in multiple African countries. Countries like
Mauritius enable companies to do so. That is why tax haven are a international
What to be done?
This is how the existence of tax
havens creates poverty and inequality and why this has to be stopped. A lot of
effort from Oxfam and other organizations has gone to stopping these tax havens.
Also on the international level there is a lot going on to stop profit
shifting. The Panama papers and Luxleaks gave a boost to the discussion but it
is far from over. A lot more has to happen before developing countries will
receive all the tax revenues they deserve.
If this blog sparked your interest
into the world of tax havens and tax avoidance you can read further on the blog of my mentor and policy advisor
on tax justice here at Oxfam, Francis Weyzig. Another source that can be used
to keep up to date on tax justice news is the tax justice network.
Thomas is interning at our tax department. He is a quiet force in the group but is always enthausiastic to join in and learn new things.