FIVE QUESTIONS ON TAX JUSTICE
By Elisabeth Massute[Whoever wants to fight inequality and poverty must create tax justice and stop tax avoidance. But what does tax avoidance mean? Why does enormous damage occur in poor and rich countries and how can tax justice be attained? This 2017 article is translated from the German on the Internet, www.oxfam.de.]
Tax contributions are the foundation for public life and our democracy so the state can fulfill its functions. Schools, streets, hospitals and kindergartens must be funded like projects in environmental protection, independent courts or the police. Public life breaks down without tax contributions. We all profit from tax contributions. That is clear!
But what happens when parts of society like multinational corporations shirk from their contributions? For example, Apple paid 0.0005% tax on its profits in Ireland – merely 50 euros on a million euros profits. What drastic tax avoidance!
What is hidden behind these dubious practices? We give answers to five central questions on the theme tax justice:
1. What is tax avoidance?
Tax avoidance means corporations or individual persons pay as little tax as possible in a legal way, for example, by sinking their wealth in tax havens or shifting their profits in tax havens where they only have to pay an extremely low tax as in the case of Apple. Tax avoidance is often legal because states do not close tax loopholes. Other governments do not cooperate or are unwilling to change anything.
2. Why is corporate tax avoidance so harmful or reprehensible?
Corporations dodge their just contribution as part of society through tax avoidance. Like all of us, corporations profit from public goods financed from tax funds. Corporations use the public infrastructures like streets and telecommunication networks and profit from the knowledge and publically-financed training of their co-workers. But they do not share in financing these public goods through tax avoidance.
Corporations profit right down the line but give nothing back. To create tax justice, companies must be obligated to make their fair contribution.
3. How much money is lost through tax avoidance by companies?
In Germany, the annual revenue loss through the tax avoidance of businesses is up to 30 billion euros according to the estimate of the German Institute for Economic Research (DIW) This amounts to nearly a tenth of the federal budget and twice as much as Germany spent in development assistance in 2015.
Developing countries lose $100 billion every year through tax avoidance of multinational companies. This happens for example when multinational companies gain profits in developing countries that they shift through loopholes into tax havens. The missing tax funds take away important funds for investments in education and health care from developing countries. In comparison, international economic assistance to developing countries amounted to $130 billion per year. This shows the importance of tax justice for developing countries.
Around $1.1 billion a year is lost in Kenya alone, a country where one of forty women die in childbirth – twice all state spending for the health sector.
4. What can governments do to create tax justice?
Governments can take different measures to bring about tax justice. For instance, tax avoidance can be prevented by governments closing legal tax loopholes and cooperating with other states to not play off business tax rates against each other.
To Angela Merkel and Martin Schulz, Oxfam urges three important measures for realizing tax justice:
1. A worldwide minimum tax rate for companies must be introduced.
2. All tax havens must be put on a black lisr and sanctioned.
3. Companies must make known where and how much taxes they pay on their profits.
You could sign our campaign “Stop Tax Avoidance by Corporations!”
4. Are the demands realistic? Can I change anything with my signature?
Oxfam’s demands are realistic. Black lists and transparency are two relevant European Union processes for which we put pressure on the CDU and SPD parties.
The next month s – with the G20 summit in July and the Bundestag election in September – are crucial for setting themes – for example, the theme of worldwide minimum tax rates. With our good work, the parties will take the demands of the campaign into the coalition negotiation s. In this way, we could influence the policy of the next four government years.
The international tax system cannot be changed from today to tomorrow. Companies will do everything in their power not to lose their chances for profit maximization. Thus, we need a long breath!