Tax Avoidance

There is no gainsaying the fact that Illicit Financial Flows (IFFs) constitute a major impediment to Africa’s sustainable development. In fact, IFFs have a direct impact on a country’s ability to raise, retain and mobilise its own resources to finance sustainable development. Its negative impact further includes draining a country’s foreign exchange reserves, reducing domestic resource mobilization, preventing the flow of benefits of foreign direct investment, and worsening insecurity, poverty and economic inequality.

This commentary responds to Fernando C. Saldivar's article 'Africa in the Economy of Francesco'. This commentary focuses on the author's main argument, which grows from the view that the tax justice movement needs to involve Catholic Social Teaching as an intellectual and moral ally in the fight for systemic reform in the global financial order. The article's main claim is critiqued on two fronts. Firstly, this commentary questions whether a moral backbone, particularly the Catholic moral niche, is sufficient to prevent tax evasion and tax avoidance by MNCs. And secondly, it is argued that the article could have advanced a deeper analysis if it had explored the nature of tax law from both the perspective of its 'spirit' aspect and its more technical aspects.

Most of DSTs significant propositions are based on several grounds, including the goal of having businesses and corporations, especially multinational corporations (MNCs) pay their due share on taxes, taxing profits derived from consumers activities in their territory, or adapting traditional regulations and systems of international taxation to guide and inform new forms of unsettling business models that can be conducted virtually. This is following the debate that digital firms are undertaxed.

The primary objective of this post is to highlight the importance and gravity of the existing tax evasion in Latin America and the Caribbean today. A study conducted by Santiago Diaz de Sarralde Miguez reports that Latin America and the Caribbean are characterized by a relatively low tax burden, which averages 22.8% of GDP. That is 11.5% less than the OECD (2015). While it is true that there are large differences between countries, as the tax burden varies from 12.4% in Guatemala to 38.6% in Cuba.

Our ethical conundrum as we think about issues of global distributive justice in the post-pandemic era is that social contract theory fails to provide an adequate framework for conceptualizing duties and obligations of international organizations to individuals, as opposed simply to their member states. The tension comes from the fact that people intuitively have a sense of justice which is offended by the manner in which power is wielded by those at the helm of the global financial order to place the interests of international organizations, banks, and multinational corporations over and above those of individual human beings, particularly those at the margins of the world economy.

What do we owe our States, and what do our states owe us? This is a difficult question, sometimes answered by invoking a social contract between the rulers and the ruled which implicitly sets out the rights and responsibilities of each. Matters get even more complicated where international citizens and multinational corporations are concerned. Are they party to multiple social contracts? Or none? I will argue that if there is a social contract, then those involved in the international tax system—including tax evasion and facilitating novel forms of tax avoidance—are party to it.

This symposium addresses issues such as the low tax to GDP ratio in developing states, the broken social contract in these countries and the reforms needed to repair the social contract. The convener, in accepting the invitation of Afronomicslaw to host the tax symposium, called upon tax practitioners, academics, policy experts, philosophers, administrators, to offer insights on the relationship between taxation and the social contract

Illicit Financial Flows (IFFs) are one of several impediments to achieving sustainable development in developing countries across the world. While there is no globally accepted definition of IFFs, there is global acceptance that IFFs undermine the efforts of developing countries to generate domestic revenues to finance their national development agendas. According to the United Nations (UN), developing countries face an estimated annual funding gap of $2.5 trillion to deliver on Agenda 2030. In Africa, the continent loses approximately $100 billion annually through IFFs that are generated in and moved from the continent to tax havens.

Developing countries are currently disadvantaged in the international tax regime. The control of the developed countries in the tax regime is evidenced in their influence in the creation of the major model tax treaties that are used as the starting point for nearly all bilateral tax treaties today. With the rise of multilateral tax instruments and an awareness of the dubious flow of tax revenue out of already disadvantaged countries, developing countries should consider renegotiating their bilateral tax treaties to ensure a more balanced international tax system that is designed for their benefit.

The AfCFTA, as presently negotiated, fails to address the potential tax avoidance likely to arise from the proposed single market. The tax-related non-tariff barriers mentioned in the AfCFTA are limited to subsidies and tax benefits granted by governments to countries. In the absence of any express provision on the allocation of taxable income among countries in the AfCFTA, it may be argued that the AfCFTA has adopted the global tax system, which treats companies in a group as separate from each other.