First came the slave traders, then the colonisers carrying
off rubber and diamonds, then the mercenaries of the cold war years. Today, it
is the accountants. Of the estimated $50bn that illicitly departs Africa
annually the bulk, according to the most widely used calculations, is neither
the proceeds of corruption nor of organised crime. Instead, the biggest drain
is via accounting fiddles by multinational companies. The data are inherently
vague but the broad figures are vast — equal to the entire annual shortfall in
African infrastructure investment.
Transfer pricing is at the heart of the illicit financial
flows. When one arm of a multinational transfers goods or services to another
arm of the group in a different country, it must record a price for that
transaction. Under the “arm’s-length principle”, the price should be the same
as that which would have been paid had the transaction been with an unrelated
company at market rates. But trade
statistics and increasingly frequent challenges by tax authorities suggest that
these numbers can be manipulated to shift profits out of countries with normal
tax rates and into tax havens such as Switzerland, Luxembourg or assorted
Caribbean islands.
“Multinational corporations take an awful lot of advantage
over the lack of capacity of African governments to police transfer pricing,”
says Raymond Baker, president of Global Financial Integrity, the US think-tank
that coined and popularised the notion of illicit financial flows. “You have to
go through all sorts of gymnastics to show that money was illegally taken out.”
After auditing dozens of multinationals, Kenya’s tax
authority demanded Ks25bn in tax it says was avoided mainly through abusive
transfer pricing. But Kenya is seeking to establish itself as a financial
centre, potentially creating new loopholes.
No comments:
Post a Comment