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Tax Evasion Hits Developing Countries

Monday, December 30, 2013

Illicit outflows from developing countries have increased by 10.2 percent a year since 2002, new research has claimed.

US-based research and advocacy organization Global Financial Integrity (GFI) has released its annual update on the funds flowing out of developing economies as a result of crime, corruption, and tax evasion. Around USD946.7bn was lost in this way in 2011, up 13.7 percent on the year before. In 2002, this figure stood at just USD270.3bn.

GFI Junior Economist Brian LeBlanc, one of the authors of the study, warned of the consequences. The money "haemorrhaged" from developing economies "could have been invested in local businesses, healthcare, education, or infrastructure."

He warned that "without concrete action, the drain on the developing world is only going to grow larger."

Among the policy solutions suggested in the report is that multinational corporations report, on a country-by-country basis, their sales, profits, and taxes paid. Governments are urged to press ahead with the automatic cross-border exchange of tax information, and reform customs and trade protocols to detect and curtail trade mis-invoicing.

Establishing the beneficial ownership of companies, foundations and trusts, is also regarded as vital. GIF recommends that governments demand that information on the true, human owner of all such entities be disclosed upon formation, and made available to law enforcement agencies, if not to the public.

Reflecting on the findings, GIF President Raymond Baker said that the study "underscores how important it is to quickly extend automatic tax information exchange to non-G20 developing countries. The G20 should include developing countries in the committee tasked with drafting the automatic exchange implementation treaty, ensuring that its terms are both beneficial to and implementable by developing countries."