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Halting tax avoidance in poor countries: Europe’s responsibility

Conference on Tax and Development

European Parliament, 9 December 2009

By Nuria Molina

Size matters: the problem in figures

$ billion

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100

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400

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700

Commercial illicit flows ODA Crisis fiscal black hole

$ billion

Europe ranks the secondin the share of illicit flows from

developing countries

%

Africa Western hemisphere

Europe

MENA

Asia

How taxes are dodged on a massive scale

• Transfer mispricing

• False invoicing

• Tax havens

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Some trends in external financing flows

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200

400

600

800

1000

1200

1400

2007 2008 2009 2010

Private capital inflowsto developingcountries

International FinancialInstitutions

The (ir)responsibility of multilateral development banks

Examples of recent IFC-backed projects involving project sponsors and financial intermediaries based in or operating through tax havens

On February 19, 2009 the IFC’s Board of Directors approved $US 215 million in loans to Kosmos Energy and Tullow Oil for the exploitation of newfound oil and gas reserves in Ghana’s Jubilee field. The approval was made over the objections of civil society groups who pointed that according to IFC's project summary "Kosmos Energy Ghana HC (“Kosmos” or the “Company”) is indirectly wholly owned by Kosmos Energy Holdings, a privately-held Cayman Island company." Despite a discussion on these concerns at the board level, the project was eventually approved without any substantial change.

The Bujagali Hydroelectric Dam project, in Uganda, for which the IFC extended $US100 million loans to Bujagali Energy Limited (BEL) in 2007. BEL is owned by Industrial Promotion Services (Kenya), an investment company of the Aga Khan group, and by Bujagali Holdings Ltd., a special purpose affiliate of the US-based power plant developer Sithe Global Power, LLC, majority owned by Blackstone SGP Capital Partners (incorporated in the Cayman Island) IV L.P., an affiliate of The Blackstone Group.

The West African Gas Pipeline from Nigeria to Ghana, financed by the World Bank Group in 2005 through a $US75 million political risk guarantee from MIGA for the project sponsor WAGPCo. and a $US50 million guarantee from IDA; WAGPCo. is incorporated in Bermuda.

What should Europe do?

Automatic tax-information exchange between jurisdictions based on a global agreement including all countries. Europe must strengthen the “Savings Tax Directive” extending its

coverage to all legal entities and to other sources of capital income.

Country by country reporting. At the European level, the EU should ensure that the coming

review of the European accounting standards (including the review of IFRS 6 and 8, and the TOD directive) ensures that multinational companies submit, in the annual reports, their accounting information on a country by country basis.

Binding financial performance standards for multilateral development banks.

Stop IFIs tax conditionality.

“We shall, under a deep conviction of the needs of humanity, refuse to be turned away from our great purpose to give the people of the world new hope and courage through the constructive results which may come from this historic moment…

Gentlemen, we must not, we cannot, we dare not fail. The hopes and aspirations of common people in each of our countries rest in us.”

Charles W. Tobey, Senator of New Hampshire, at the Bretton Woods Conference in 1947

More information at www.eurodad.org