Tax dodge hits Scotland's aid projects

06/10/2009

Funding of Africa's poorest 'overshadowed' by tax scams

Scottish funding in some of Africa’s poorest countries is being wiped out by tax dodging multinational companies, according to a new report.

Scotland’s latest three-year £13million commitment to aid projects in Malawi and four other developing countries is dwarfed by the £43million lost over three years through tax scams practised by European and US firms.

Former First Minister Jack McConnell, who established the partnership with Malawi, is furious that companies finding new ways to fiddle their finances are preventing nations in east Africa from developing their own revenue stream.

McConnell, the Prime Minister's special representative to the African Union, said: “They are taking money directly from the world's poorest people. It has to stop. We all have a responsibility to support development across the world, and that includes those companies which cynically use developing countries to avoid paying their full tax liabilities.”

According to Christian Aid’s report ‘The Missing Millions’, Scotland’s aid to Malawi, Zambia, Tanzania, Rwanda and Darfur is being “overshadowed” by “the pinstripe pirates”.

Some companies are exporting goods and services out of these countries at artificially knocked-down prices to avoid highest tax rates, then raising prices again after importing elsewhere. A similar scam involves unrelated multinationals making ‘false invoicing’ deals to misprice transactions. By undervaluing the prices they pay to each other, they can report lower profits, pay less tax and then split the real difference in profit through payments between themselves.

Una Bartley, one of the authors of the study, commended the Scottish Government for honouring its aid commitments in the current financial crisis, but claimed the emphasis for ministers should now be on pressuring for greater oversight.

“Tax is a much more sustainable and dignified source of revenue than aid,” said Bartley. “Tax also supports greater accountability between the state and its citizens. States that rely on tax revenues are more likely to see the development of responsive governments, and thus improved development prospects, as well as fewer conflicts.”

Christian Aid is one of a growing number of NGOs now calling for the establishment of international body to oversee greater transparency in global financial transactions. Tax dodging by multinational companies is though to cost developing countries in excess of £100bn a year.

David Hope Jones, Co-ordinator of the Scotland Malawi Partnership said tax dodges “damage the future” of developing nations. “The government (in Malawi) has made huge strides in recent years in meeting its development challenges, and Scotland is proud to stand shoulder to shoulder with our friends and colleagues.”

McConnell said: “Aid is a short term answer to immediate problems, such as food insecurity, but is not a sustainable long term solution. Our global ambition should be to support fragile states and countries such as Malawi develop strong economies and civic institutions.”

Plans for McConnell to become the UK's High Commissioner in Malawi were put on hold recently after a career diplomat, Fergus Cochrane-Dyet, was installed instead.

Mr McConnell was promised the job after he stood down as Scottish Labour leader following the 2007 elections but the appointment was delayed until 2011, after he was given a new international role by Prime Minister Gordon Brown as his peace and resolution envoy in Africa.