From poverty to power - Oxfam-Québec

5 THE INTERNATIONAL SYSTEM FINANCE• Assets are held offshore in tax havens that guarantee secrecyand so help rich people avoid paying taxes. The notorious USenergy company Enron showed how it was done. According tothe US Senate report into the company’s collapse, Enron’saccountants set up a global network of 3,500 companies, 440of them in the tax haven of the Cayman Islands, and paid nofederal income tax at all between 1996 and 1999. 46• Corporations are adept at abusing so-called ‘transfer pricing’,which involves under- or overcharging for trade withindifferent company affiliates in order to minimise tax. Onestudy revealed companies recording internal transactions oftelevision antennas from China priced at $0.04 and Japanesetweezers priced at $4,896. 47 Shell companies are set up in taxhavens to further reduce liabilities: roughly half of world tradeis believed to pass through tax havens, at least on paper. 48• Tax competition forces governments to offer ever greater taxholidays to investors to match those of rival locations.• Individuals and companies simply do not pay the taxes due.• Governments are unable to tax an increasing amount ofeconomic activity due to the growth of the informal economy.Moreover, developing countries are under huge pressure throughtrade talks and aid conditions to cut what is currently one of theirmost effective means of raising taxes – trade tariffs.Taxation lies at the heart of the social contract between citizen andstate, and is discussed more fully in Part 2. To make national taxsystems work for the poor, governments need to build up their abilityto collect taxes and to do so progressively, so that rich people pay morethan poor people. But unless international measures are taken to shutdown the luxury boltholes used by tax avoiders, poor countries willcontinue to miss out on the lion’s share of the revenue they are due.Such measures could include rules for greater transparency fromcorporations: for example, specifying how much tax they pay to eachgovernment, rather than a single global aggregate figure across thewhole company; improved exchange of information between governments;and an end to secrecy in offshore tax havens. More ambitiouswould be a global agreement on a minimum level of corporate taxation315