Corporate tax accountants can employ such schemes as the “single malt,” the “green jersey,” “patent boxes” and the “double Irish” to sidestep the tax man.
“I studied accounting once,” said Rotman School of Business, University of Toronto emeritus professor of economic analysis and policy Richard Bird. “My first accounting professor — this was in England — said to me, ‘What do you say when your boss says tell me what the profits are for last year?’ I didn’t know. I was a firstyear student. He said, ‘You ask him what he wants them to be.’ ”
All that accounting creativity is costing Africa big time, complains Jesuit Fr. Charlie Chilufya, an economist and director of the Justice and Ecology Network for the Jesuit Conference of Africa and Madagascar.
A 2016 report from a panel headed by former South African president Thabo Mbeki estimated the offshoring of profits for tax purposes was costing African countries between $60 and $100 billion per year in tax revenue. To make the math easier, Chilufya uses the figure of $50 billion for the 54 countries in Africa, asking his audiences what it would mean to put nearly $1 billion per year into the treasur y of every African nation.
That kind of injection would mean there would be medicine on the shelves of pharmacies in rural hospitals, food for poor mothers and their children and paved roads to allow farmers to get their crops to market.
Canada is deeply involved in all of this, Chilufya told his audience at a presentation titled “Africa: Tax Justice and the Common Good” at the Mary Ward Centre in Toronto, organized by the Canadian Jesuits International, last month. Canadians for Tax Fairness pegged Canadian funds squirrelled away in tax havens at $261 billion at the end of 2016, down from $272 billion in 2015.
Chilufya pointed out that Canadian stock markets are home to about half the publicly-traded mining companies in the world, and that international mining companies are among the masters of tax avoidance, often negotiating extended tax holidays with corrupt or illegitimate governments in exchange for investments that are sometimes grossly overstated.
“This is a matter of ethics,” Chilufya declared, speaking a few blocks north of the world’s largest stock market for mining, oil and gas. “We encourage Canadians and northerners to care.”
Hiding profits in tax havens from Ireland to the Cayman Islands is perfectly legal, but legal doesn’t equal moral, Chilufya said.
Chilufya worked for the International Monetary Fund in Zambia before he joined the Jesuits in the early 2000s. These days he studies and writes about taxation in his role for the Jesuits.
BEPS, or “Base Erosion and Profit Shifting” — a fancy term for corporate strategies meant to exploit loopholes and avoid tax — is a major topic in economics. “It’s true that it’s a technical issue, but it’s a matter of life and death also,” said Chilufya. “It affects human beings in several ways. There are already developments where now churches are coming together, ecumenical movements, to discuss this issue.”
Bird has been studying the problem for 50 years. Though the concept that corporations should pay their taxes where they make their money may sound simple, enforceable international rules to make that happen are not a simple proposition, Bird said.
“I now have come to the conclusion that basically the problem is that a lot of people look at this as a moralistic thing. The rich should help the poor more. The rich don’t want to hear that, so they sort of reject that argument,” he said.
“The trouble is that you’ve got to sell it politically.”
Chilufya, however, is not about to ignore the fact that the flow of money out of Africa and other poor parts of the world is wrong.
“When a firm uses its tax planners to look for opportunities like that, that’s all legal. But is it reasonable?” he asks.