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AUSTRALIA

G20's opportunity to nail multinational tax dodgers

  • 07 November 2014

Thursday’s Financial Review reported that Swedish furniture company IKEA’s Australian arm has earned an estimated $1 billion in profits since 2003, almost all of which has been exported tax-free. 

Ikea is not alone among multinational corporations that seem to have found a way to defy Benjamin Franklin’s famous assertion that we can only be certain of death and taxes. Others include Google, Facebook, Apple, Amazon, and Starbucks.

Using a variety of legal but questionable or difficult-to-trace methods, multinational companies are often able to avoid tax on large parts of their business activities.

However the problem is not confined to just a few mostly tech giants. Many multinational mining, forestry, agriculture and even consumer-goods companies are coming under increasing scrutiny for the artificial structures and transactions they have created for the purpose of avoiding tax.  

Sadly, as with any form of corruption or unethical behaviour, it is the world’s poorest who end up suffering the most. Christian Aid estimates that in 2008, developing countries lost more than USD 160 billion through just two forms of multinational corporate tax dodging. This conservative estimate dwarfs what that these countries receive in aid, which amounted to USD 120 billion in 2009.

When translated from dollars into lives saved, developing countries could spare the lives of around 350,000 children each year if they had access to these lost revenues.

We also know from estimates provided by the United Nations that every USD 100 million recovered from tax dodging and corruption could fund full immunisations for four million children, provide water connections for some 250,000 households, or fund treatment for over 600,000 people with HIV/AIDS for a full year. 

The reality is that tax is the primary source of income for developing nations to provide essential services to their citizens – services we all need, like health care, education, aged care, clean water and roads. When multinational companies and wealthy individuals avoid paying taxes, everyone else (including the poor) have to either pay more tax or go without essential services. 

The impact on developing countries is devastating, denying them the money they need to be self-sufficient and making them dependent on aid and debt. This truly becomes the case of the rich getting richer while the poor miss out.

Beyond the actions of multinational corporations, though, it is clear that the global tax rules need to be changed. It is the global rules which make it possible, and even seem desirable, for multinational corporations to
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