Thank you and good morning.
Just as a note, the Halifax Initiative, the organization I am with, is a coalition of Canadian NGOs, labour, and faith-based groups, and we focus on international economic issues.
Personally, I am not a tax attorney. I have spent the last 30 years of my life working with anti-poverty organizations in Asia and Africa, and thus my comments today will focus largely on the role of tax havens in facilitating tax losses from developing countries. Tom has certainly already spoken about that.
I will also comment on the part that Canada can play to promote transparency in international finance.
As my colleague Tom said, tax havens are essentially secrecy jurisdictions, and these jurisdictions enable people or entities to escape the laws, rules, and regulations of other countries.
I know that some of you met James Henry when my organization brought him to Ottawa last November. Mr. Henry conducted a major piece of research into how much individual wealth has been channelled through offshore tax havens. That study estimated that $21 trillion to $32 trillion of the financial wealth of individuals from 139 low- to middle-income countries has been channelled tax-free through more than 80 offshore tax havens. This represents tax losses to these countries of almost $200 billion a year.
Colleagues at the University of Massachusetts have found that $700 billion fled 33 sub-Saharan African countries between 1970 and 2008. This means that sub-Saharan Africa is a net creditor to the rest of the world, its foreign assets far exceeding its foreign debts of about $175 billion. A significant proportion of these assets is in the hands of individuals.
In 2007 African high-net-worth individuals had offshore assets of $1 trillion. As my colleagues have said, tax havens also provide opportunities for multinational companies to reduce or eliminate their tax obligations. By establishing subsidiaries in tax havens, they can transfer profits from high-tax to low-tax jurisdictions. A recent study by Christian Aid calculated that between 2005 and 2007, transfer mispricing shifted $8.5 billion out of the world's 49 poorest countries, resulting in tax losses of $2.6 billion over that three-year period.
An African colleague of mine was speaking at a conference this week in South Africa, and he asked, “How is it possible that a company with 3,000 employees in Malawi and three employees in the Cayman Islands can attribute 70% of its profits to the Cayman Islands?”
The deputy finance minister of Zambia said a month ago that most international mining companies operating in Zambia report that they're unprofitable and thus pay no corporate income tax. He reckons that his country loses $2 billion a year due to profit-shifting. He said, “That money could build a lot of hospitals and schools.”
This reality has deadly outcomes for poor countries. It reduces the capacity of poor countries to finance essential public services. It contributes to higher child mortality rates—there's research on that—and it undermines development assistance from countries like Canada.
So we have four propositions, some of which Tom has already alluded to.
First, we believe that a multilateral framework for the automatic exchange of tax information needs to be established, requiring all governments to collect data from financial institutions on income paid to non-residents, corporations, and trusts.
Second, we need to put an end to the secrecy provisions that provide anonymity to individuals and companies. The beneficial ownership, control, and accounts of companies, trusts, and foundations should be on the public record.
Thirdly, we believe—Tom mentioned this—that transnational companies should be required to report all of their financial transactions: sales, purchases, labour costs, financing costs, taxes, and value of assets on a country-by-country basis. This would reduce the ability of corporations to shift profits to low-tax jurisdictions and costs to high-tax jurisdictions. We have made submissions on this issue to the International Accounting Standards Board.
Lastly, we support the call of many developing countries to transform the UN tax committee into an intergovernmental commission, a proposal that Canada has to date opposed. International tax policy has been dominated by the OECD, an association of 34 wealthy countries. Developing countries want an international forum where their needs and interests on tax matters are represented.
We believe that Canada should be a leader in the G-8, the G-20, the OECD, in promoting transparency in finance and in promoting tax compliance. Prime Minister Cameron has said that corporate tax avoidance will be a priority agenda item during Britain's G-8 presidency this year, and we hope that Canada will support and engage in that initiative.
Our proposals are ambitious, but the stakes are high. If these massive outflows from developing countries can be curtailed, it could lead to major improvements in the lives of millions of poor people.
Thank you.