Giving it all away

Tax havens are impacting on governments around the world. And when the totals are calculated, millions of lives and the debts of developing countries are severely affected.

Governments around the world are losing revenues of $255bn each year through the use of tax havens, according to a report from the Tax Justice Network (TJN) which is connected to a UK think-tank and pressure group, the New Economics Foundation. But the overall costs could be even higher, argues the report, given that the figure does not take into account tax losses arising from corporate profits hidden in tax havens, nor does it take into account the indirect impact through the low rate of taxation in offshore centres contributing to downward pressure on tax rates in the major economies.

The TJN claims that tax havens are a key factor in undermining international progress at challenging third world poverty. Lobbyists argue that without changes to the world's tax system, it will be difficult for the United Nations to meet its pledge to eradicate extreme hunger and poverty by 2015, meeting the aims of the Millennium Development Goals to cut the death rate of under-fives by two-thirds, to halve the proportion of people surviving on less than a dollar a day, and to tackle illiteracy in the developing world.

'The issues of tax havens and tax competition are symptomatic of a much wider malaise at the heart of the international financial system,' said David Woodward, director of the Global Economy Programme at the New Economics Foundation. 'This is a critical time for development, and particularly for the achievement of the Millennium Development Goals. If we are serious about reducing poverty, one of the first things we need to tackle is an international financial system run by the rich, for the rich, at the expense of the poor. It is time to rethink what the system is for - and dealing with tax havens and tax competition could be an important first step. US $255bn of lost public revenues is just one part of the price we pay for our failure.'

The TJN is calling for tougher action against tax evasion and tax avoidance, aimed at increasing the tax take from large corporations and highest income individuals. It says there must also be greater transparency over investment flows which, according to the TJN, drain those economies most in need of economic development. They argue that combating international tax avoidance should be a major theme for the UK Government this year, as it holds two influential positions - as presidents of the G7 leading economic nations and of the European Union from July.

There is already widespread international support for plans from the UK to write-off debt among poorer African nations and for the creation of an International Finance Facility, which would essentially securitise promises for future years' aid payments from the major nations. This would allow the poorest countries to immediately improve their infrastructures. According to the UK, the initiative would save five million lives over the next decade and would be the only realistic way of meeting the Millennium Goals. But some countries backing the IFF - particularly France and Germany - believe that it should be allied to the 'Tobin Tax', a micro tax on international capital transactions, to assist in the long-term repayments.

The Commission for Africa, set up by Tony Blair, has also assisted in increasing international awareness of the severe crisis facing the continent in terms of poverty and disease - particularly Aids.

'Gordon Brown and the Commission for Africa are ideally placed to act on offshore tax avoidance since so many of the banks and tax havens that facilitate these processes have British links,' argued John Christensen, international coordinator of the TJN. 'For decades, governments have failed to act against the system of offshore trusts and banking secrecy, which encourages tax avoidance. If Gordon Brown is serious about wanting to tackle global poverty, he should take a lead in pushing for an end to all aspects of offshore secrecy that makes this possible.'

Tax Research, the agency which compiled the figures for the TJN, assessed the world-wide value of assets held offshore at $11.5trn. However, this only included assets owned by large corporations and high-net-worth individuals, who hold cash of more than $1m, and ignored people on lower incomes who use offshore facilities.

'No one has tried to calculate a number like this before,' said Richard Murphy, director of tax research. 'To ensure the credibility of our data we have only used information already in the public domain and produced by some of the most authoritative sources in the world. In addition, we tested our conclusions against three independent sources of information, and all seem to substantially agree, giving us a high-degree of confidence in the conclusions we have reached.'

TJN claims that if this international tax loss were collected it would be enough to meet the UK's 10-year international target of aid for the developing world in just two years, or could meet the World Health Organisation's classification of the minimum financing for healthcare services for all people in the world.