Speaking in Dare es Salaam last weekend during the launch of a new book titled: ‘Lifting the veil of se- crecy, perspectives on international taxation and capital flight from Africa,’ experts who edited the book who included Mzumbe University economist, Professor Honest Ngowi said MNCs have been overexploiting the continent mostly through illicit financial flows and use of tax heav- ens to hide their profits.
They pointed out that a Hidden Wealth of Nations Report of 2015 had estimated that approximately U$7,600 billion was illegally stashed in tax havens by MNCs while deny- ing African governments their fair share of the profits mostly made from extractive industries.“Multinational companies have continued re-
patriating their profits made from African devel- oping countries where they have investments to low tax jurisdictions. There is also a big challenge to access data from payments being made by these companies to governments which makes it difficult in determining the exact sums of money and assets stashed in tax heavens,” said Prof Odd- Helge Fjeldstad of African Tax Institute at Univer- sity of Pretoria.
Prof Odd said the secrecy and lack of transparency about economic activities makes the tax ha- vens attractive the companies which do not want to share information on their earnings.
He said tax havens facilitate illegal capital flight, harmful tax competition, money laundering, grand corruption and economic crime. Tax havens create market distortions and stifle com- petition.
The Swedish academician also said another il- licit profit repatriation to tax havens by multinational companies is through transfer pricing and purported financing of an investment in a high- tax country through equity.
“The investment is financed through debt to a subsidiary in a low-tax country and by transfer- ring interest payments, often at high rates, from the high-tax country to the low-tax country, prof- it shift and tax owed in the high-tax country is reduced,” he revealed.
According International Monetary Fund in 2015, developing countries were losing around U$200 billion annually through corporate tax evasion which constitutes between 6-13 percent of the potential tax revenue for developing coun- tries.
Speaking at the same gathering, Prof Ngowi profits repatriation to offshore jurisdictions by MNCs occur to maximize profits by reducing tax payments hence denying governments revenue.
“Either profits could be shifted out of the country or costs could be shifted into the country, or both. Methods used for this purpose are transfer mispricing, internal loans and royalties,” Prof Ngowi noted.
He said the use of tax havens has received considerable attention globally in recent years as it ruins revenue and overall economic growth of African countries.
Global Financial Integrity in its 2016 analysis estimated that illicit financial flows from Africa have increased to U$75 billion annually. The es- timates are however undoubtedly conservative, as they do not include cash movements, most criminal activities and misinvoicing of goods and services.