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Thread: The role of tax evasion (by multinational corporations) in African clusterfuck

  1. #1

    Default The role of tax evasion (by multinational corporations) in African clusterfuck

    What's your take on the notion that tax avoidance/evasion by multinational corporations contributes greatly to the limited and unreliable development of many resource-rich African nations?

    Consider as many sides as possible.
    "One day, we shall die. All the other days, we shall live."

  2. #2
    I would think a (large) portion of the wealth that may be brought in by multi-national corporate investment being waylaid and/or wasted lies at the door of corrupt African politicians.

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    Quote Originally Posted by Aimless View Post
    What's your take on the notion that tax avoidance/evasion by multinational corporations contributes greatly to the limited and unreliable development of many resource-rich African nations?

    Consider as many sides as possible.
    It's certainly a problem. But to blame African development on it is quite absurd. I doubt it makes the top five list.
    Hope is the denial of reality

  5. #5
    Quote Originally Posted by Loki View Post
    It's certainly a problem. But to blame African development on it is quite absurd. I doubt it makes the top five list.
    I don't know if its among the top five contributors, but I wonder if it might not be one of the more influential problems that may in theory be fixed.
    "One day, we shall die. All the other days, we shall live."

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    It's about as likely to be fixed as the top 5. All the leverage is on the side of the corporations and poor countries are better off from having investment from these companies even if they pay little in taxes than they would be in not getting the investment.

    By the way, the belief that a country can become developed by selling its natural resources is an idiotic one. There's virtually no precedent for it. In fact, the opposite is true. Resource rich countries usually become corrupt crapholes because the governments have no incentive to nurture a larger tax base. Even when they do manage to extract a lot of money from foreign corporations (see Libya under Qaddafi, the Saudis, Iran under the Shah), very little of the money gets spent in areas that would promote development.
    Hope is the denial of reality

  7. #7
    Quote Originally Posted by Loki View Post
    It's about as likely to be fixed as the top 5. All the leverage is on the side of the corporations and poor countries are better off from having investment from these companies even if they pay little in taxes than they would be in not getting the investment.
    Relative to poor African countries the leverage may be on the side of the corporations, sure, but relative to wealthy developed countries with which creative multinational corporations and their tax havens do business...?
    "One day, we shall die. All the other days, we shall live."

  8. #8
    See edited point above. The problem isn't corporations not paying enough; the problem is where the money is going, and that problem can't be resolved in a country that relies predominantly on the sale of natural resources. Is the West going to tell their corporations to do business in countries with higher taxes?
    Hope is the denial of reality

  9. #9
    Quote Originally Posted by Loki View Post
    See edited point above. The problem isn't corporations not paying enough; the problem is where the money is going, and that problem can't be resolved in a country that relies predominantly on the sale of natural resources. Is the West going to tell their corporations to do business in countries with higher taxes?
    Place severe sanctions on island tax havens that enable various forms of illicit capital flight from both developing and developed countries? Apart from the UK and Russia pretty much every western country should be on board.

    If your enemy goes to Bahamas, leave no Bahamas to go to.

    Help developing countries develop and enforce their tax code and laws. It's the right thing to do!

    Enforce things like the "arm's length" principle to prevent abuse of transfer pricing
    "One day, we shall die. All the other days, we shall live."

  10. #10
    Ok, then those corporations will simply go to tax havens that are not illicit, like Ireland and Slovakia.
    Hope is the denial of reality

  11. #11
    Quote Originally Posted by Aimless View Post
    Place severe sanctions on island tax havens that enable various forms of illicit capital flight from both developing and developed countries? Apart from the UK and Russia pretty much every western country should be on board.

    If your enemy goes to Bahamas, leave no Bahamas to go to.

    Help developing countries develop and enforce their tax code and laws. It's the right thing to do!

    Enforce things like the "arm's length" principle to prevent abuse of transfer pricing
    The only effective long-term way to combat evasion is to implement a tax system that those under it are willing to comply with voluntarily with very limited to no coercion. It is constantly demonstrated, in history and in contemporary analysis that the more aggressively coercive tax-collection is, the more capital people try to hide away entirely. You see a similar phenomenon the higher the tax burden gets.

    The real problem with these illicit capital flows is that because they're hidden, we don't know why it is they're leaving the country in the first place which makes it hard to even effectively plan how to make people want to keep their capital within the country.
    Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"

  12. #12
    Quote Originally Posted by Aimless View Post
    What's your take on the notion that tax avoidance/evasion by multinational corporations contributes greatly to the limited and unreliable development of many resource-rich African nations?

    Consider as many sides as possible.
    I have trouble seeing how these figures, if we are to believe them, really relate to taxation. Broken government doesn't just mean you have to bribe people, but that you use bribes as "multipliers" to get things done. EG "illegally" mined minerals that you bribe to get a stamp that said minerals are legal, which then get sold to a trader which then move up the food chain to a multinational who turns those minerals into smartphone screens.

    Trying to hitch this to taxation seems like a counterproductive turn away from focusing on good government. You don't get good government by raising taxes and finding more ways to tax companies/people. In fact, I think that's a way to ensure bad government because the social contract will break-apart under the weight of a multi-headed tax hydra.

    That said, the numbers user here strike me as very hard to calculate.

  13. #13
    Quote Originally Posted by Aimless View Post
    Consider as many sides as possible.
    Quote Originally Posted by Loki View Post
    All the leverage is on the side of the corporations and poor countries are better off from having investment from these companies even if they pay little in taxes than they would be in not getting the investment.
    One possibility: begin to consider other nations like we do our own states/provinces, in a cooperative win/win way. Alaska comes to mind.

    By the way, the belief that a country can become developed by selling its natural resources is an idiotic one. There's virtually no precedent for it. In fact, the opposite is true. Resource rich countries usually become corrupt crapholes because the governments have no incentive to nurture a larger tax base. Even when they do manage to extract a lot of money from foreign corporations (see Libya under Qaddafi, the Saudis, Iran under the Shah), very little of the money gets spent in areas that would promote development.
    Didn't all early societies become developed, and wealthy, by selling their Natural Resources? That 'precedent' once included selling Human Resources as cheap labor (ie, slavery) as energy conduits. (Energy as in people creating the production that created wealth.) All that happened with some form of "government" asserting its power over developing places, even when it meant there was NO comparable power structure to be a counter-force.

    Quote Originally Posted by LittleFuzzy View Post
    The only effective long-term way to combat evasion is to implement a tax system that those under it are willing to comply with voluntarily with very limited to no coercion. It is constantly demonstrated, in history and in contemporary analysis that the more aggressively coercive tax-collection is, the more capital people try to hide away entirely. You see a similar phenomenon the higher the tax burden gets.

    The real problem with these illicit capital flows is that because they're hidden, we don't know why it is they're leaving the country in the first place which makes it hard to even effectively plan how to make people want to keep their capital within the country.
    While everything you say makes sense....I don't see that being sustainable in the future of a "globally aware" world. This is a new millennium, the Information and Technology Age. There's going to be more competition between blind consumption and consumerism, energy resources, and its human conduits. Blood diamonds. Food for Oil. Garments made in sweat shops.

    Tax policies may not mean as much as Humanitarianism: thinking of people first, and making policy accordingly.

  14. #14
    Quote Originally Posted by Aimless View Post
    Place severe sanctions on island tax havens that enable various forms of illicit capital flight from both developing and developed countries? Apart from the UK and Russia pretty much every western country should be on board.

    If your enemy goes to Bahamas, leave no Bahamas to go to.

    Help developing countries develop and enforce their tax code and laws. It's the right thing to do!

    Enforce things like the "arm's length" principle to prevent abuse of transfer pricing
    Man it would be so much easier to do all this with one world government!

  15. #15
    Quote Originally Posted by Lewkowski View Post
    Man it would be so much easier to do all this with one world government!
    It's called the US, and it's almost the only one that collects taxes outside their borders.

    Well if you own the world, you there is no outside of borders.
    "Wer Visionen hat, sollte zum Arzt gehen." - Helmut Schmidt

  16. #16
    Quote Originally Posted by Lewkowski View Post
    Man it would be so much easier to do all this with one world government!
    It's more important for the world to value mankind as one, more than any government, but that won't be easy.

  17. #17
    Quote Originally Posted by GGT View Post
    While everything you say makes sense....I don't see that being sustainable in the future of a "globally aware" world. This is a new millennium, the Information and Technology Age.
    It's possible it's not sustainable in an increasingly connected and "faster" world. As I was writing, I was considering that an economist might frame what I said as agents go along with tax systems because the costs of compliance are cheaper than the costs of evasion/shelter/etc, i.e. it's the cheaper way to go. Combining the possible implications of this Information Age and what I said and how an economist might frame it, I got to thinking that one could easily consider different countries tax systems as market competition. The barriers between systems were far lower than they once were and that trend looks to be continuing. Capital is easy to move, if governments try to make it hard to move they're going to run into the same impulses driving people to hide capital against coercive or "excessive/expensive" taxation. Getting voluntary compliance *and consequently effective and efficient tax collection* more or less becomes a race to the bottom for governments which suggests that the model governments have used to raise revenue during the 19th and 20th centuries might be becoming out of date.
    Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"

  18. #18
    Agreed, models are probably out of date, and not just for "raising capital" via taxes. It's easy for wealth to 'hide' their capital (Cayman Islands, Swiss bank accounts) and 'move' their capital through triangulated schemes (Double Irish, Dutch Sandwich).

    It's not really normal market competition when only high-income/high capital can use those schemes, and has teams of tax attorneys to protect their evasion/shelter against under-funded, under-staffed public agencies. Academic economists move slower than High Finance, and political economists are slower than demographic/behavioral/social changes.

    How we use economic and monetary interventions to force reform in other nations (with weak governments and/or corrupted power) might become an outdated model, too. Whether that's PIG, BRIC, North Korea, Iran, Syria....EU 'austerity' or UN 'sanctions'....it doesn't seem to change the power/wealth dynamic.

  19. #19
    [QUOTE=GGT;139449]
    It's not really normal market competition when only high-income/high capital can use those schemes, and has teams of tax attorneys to protect their evasion/shelter against under-funded, under-staffed public agencies.
    Except it's not necessarily true now and even if it does happen to be the case now it will not necessarily be true in the future as the Information Age progresses, that only high-income agents who have teams of attorneys working on it will be able to engage in such methods. They probably will always be able to do so more safely but a measure of security can also come in numbers. The more people doing it, the harder it is for public agencies to catch much of it. It always has and I expect always will cost more money to catch and stop most evasion in a high-evasion environment than is actually brought in by catching and stopping it. That's why the bulk of the population and the money being voluntarily-compliant is so important, because it's neither reasonable nor feasible to effectively enforce any rule or law that most people are set on breaking.
    Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"

  20. #20
    Quote Originally Posted by LittleFuzzy View Post
    snip

    That's why the bulk of the population and the money being voluntarily-compliant is so important, because it's neither reasonable nor feasible to effectively enforce any rule or law that most people are set on breaking.
    That's when income and wealth disparities become social/political protests. When the bulk of any populace, even in developed first world nations, does not own or control the bulk of its capital, assets, wealth, or political power.....we see protests, riots, or social movements like "Occupy".

  21. #21
    And the price of potatoes in Des Moines is. . .
    Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"

  22. #22
    Quote Originally Posted by GGT View Post
    It's more important for the world to value mankind as one, more than any government, but that won't be easy.
    Difference between you and me. I'd rather value mankind as over 7billion individuals rather than one.
    Quote Originally Posted by Ominous Gamer View Post
    ℬeing upset is understandable, but be upset at yourself for poor planning, not at the world by acting like a spoiled bitch during an interview.

  23. #23
    Quote Originally Posted by LittleFuzzy View Post


    Except it's not necessarily true now and even if it does happen to be the case now it will not necessarily be true in the future as the Information Age progresses, that only high-income agents who have teams of attorneys working on it will be able to engage in such methods. They probably will always be able to do so more safely but a measure of security can also come in numbers. The more people doing it, the harder it is for public agencies to catch much of it. It always has and I expect always will cost more money to catch and stop most evasion in a high-evasion environment than is actually brought in by catching and stopping it.

    That's why the bulk of the population and the money being voluntarily-compliant is so important, because it's neither reasonable nor feasible to effectively enforce any rule or law that most people are set on breaking.
    Quote Originally Posted by LittleFuzzy View Post
    And the price of potatoes in Des Moines is. . .
    Depends on farm subsidies, and if they benefit big-ag at the expense of poor folks who need food aid... <<yeah, I know you saw my reply as irrelevant >>

    I'm saying when the bulk of populations don't own the bulk of wealth and power, that can lead to social unrest. Using social media becomes more important/influential in exposing dissatisfaction by the general public. Things can escalate when legislators confuse (fewer) wealthy donors with general voters, and fail to represent majority voices. *Recall the controversy over Big Bank Bailouts? The Occupy movements? The comment about 47% of people who don't pay income taxes?*

    You focused on methods, legal framework and enforcement, and if the bulk of people might have equal access (to information, process, and procedure) as high-income power brokers do now. Security in numbers? When you say:

    That's why the bulk of the population and the money being voluntarily-compliant is so important, because it's neither reasonable nor feasible to effectively enforce any rule or law that most people are set on breaking.

    my response is that "most" people are voluntarily compliant, try to follow the rules, and don't set out to violate Tax laws. "Most" people also don't have same access/influence as lobbyists for special interest groups. When our political system is driven by the Almighty Dollar, and being elected to legislate means multi-million dollar campaign war chests, Laws tend to appease those with the most money, who greased the wheel. This is not unique to the US, btw.



    Quote Originally Posted by RandBlade View Post
    Difference between you and me. I'd rather value mankind as over 7billion individuals rather than one.
    Read back to Lewk's post. My reply was both a play on words, and poking fun at his sarcastic reply about One World Government.


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