STOP

Fifty Shades of Tax Dodging • 15
Developing countries are more prone to the negative effects
of tax dodging than developed countries in many ways. For
example, while only 3 per cent of corporate investments
in developed countries originate from ‘tax havens’, 81 the
comparable figure for developing countries is 21 per cent
and the proportion rises to a full 41 per cent for transition
economies. 82 Similarly, while 10 per cent of European wealth
is held offshore, the comparable figure in Africa is three
times higher at 30 per cent. 83
Facing these challenges, some developing countries are
pushing back. As of 2014, the Kenyan tax administration
had successfully reclaimed approximately €210 million by
challenging multinational companies’ internal trading that
shifted profits out of the country, 84 while in Bangladesh,
a newly established office will police the tax payments of
multinational companies. 85 Late in 2014, China won its first
major tax claim against a multinational company, taking in
€103 million, 86 and has subsequently promised “shock and
awe” tactics against tax avoiders. 87
However, developing countries risk coming under immense
pressure for targeting multinational companies. Standing
up to the threat of reduced investments and being branded
a hostile investment destination can be difficult for most
developing countries to withstand.
And it is not just a matter of standing up to the pressure.
Even with the best of intentions, developing countries
are learning the same lesson as many rich countries are
learning – that making sure that multinational companies
do not dodge taxes requires international cooperation. This
is particularly the case for developing countries, which
often find that the decisions affecting them most on taxing
transnational investors are taken where the companies are
based − and very often that means Europe.
3. Europe’s role in upholding an unjust
international tax system
“The Union shall take account of the objectives of development
cooperation in the policies that it implements which are likely to
affect developing countries.”
The Lisbon Treaty, Article 208 88
As the world’s biggest economy that is home to many
multinational companies and has close ties to developing
countries, Europe plays a central role in any discussion
on international tax justice. Europe has taken the lead in
the past, adopting policies that were pioneering such as
public country by country reporting for the financial sector.
However, as the many scandals of the last year have shown
(see Box 6), European policies are in some instances also
used to dodge taxes. Below we look at a number of aspects
of the international tax policies of Europe and their effect on
developing countries.
3.1 Bank secrecy and the lack of exchange of
information
The leak of banking information from the Swiss branch of
HSBC – Europe’s biggest bank – caused a major uproar
in 2015 and brought banking secrecy back into the public
spotlight.
What the so-called ‘SwissLeaks’ revelations exposed was
a banking system built on concealing money, with few
questions asked and a maximum amount of secrecy. Table
1 shows that more than €51 billion 89 was stashed away in
50,000 bank accounts that were connected to developing
countries. Reacting to the SwissLeaks scandal, an economist
from Swaziland said: “It’s shocking how huge banks such
as HSBC have created a system for enormously profiteering
at the expense of impoverished ordinary people, worse by
assisting numerous millionaires from Africa in particular to
evade tax payment, disadvantaging the already poor.” 90
Table 1: SwissLeaks and developing countries – the numbers
Total
amount in
billion € 91
No. of bank
accounts
No. of
clients
Total
developing
countries
51,573 50,071 37,845
Source: Eurodad calculations based on ICIJ data. 92 The data is based on the
leaks of bank accounts from the Swiss branch of HSBC dating primarily from
the period 2006–2007. Please note that there are 33 developing countries that
are not covered in the SwissLeaks database.