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#MauritiusLeaks shows the urgent need to reform the International Tax Framework to combat profit shifting

Alternative Information & Development Centre (AIDC) | Press Release | 23 July 2019

With the help of weak national legislation, auditing firms, lawyers and banks, transnational corporations (TNCs) have created a world of secrecy, allowing them to act with almost total impunity. Until we see greater transparency of corporate practices we are largely dependent on so called ‘leaks’, to shed light on the deleterious practices of transnational corporations (TNCs). The latest of these exposures is the #MauritiusLeaks by the International Consortium of Investigative Journalists (ICIJ).

The latest leak shows how Mauritius (ranked in the top 15 corporate tax havens, with a statutory corporate tax rate of 3%) is another favourite destination of TNCs. These TNCs use secrecy (tax) havens to hide unsavoury and, what ought to be illicit activities, that siphon of huge amounts of capital at the expense of the majority ordinary people particularly in emerging economies, including Mauritians. 

The effects of profits shifting extends way beyond the erosion of the tax base; it also results in wage evasion and declining resources for social infrastructure investment. Putting a stop to profit shifting is therefore critical in a context where we see growing inequality, the desperate need for increased social spending and greater investment. 

To this end, immediate steps need to be taken to ensure greater transparency through the implementation of the ABCDs of transparency. These include:

  • Automatic Exchange of Information
  • Beneficial ownership information disclosure in public registries
  • Country-by-country, subsidiary-by-subsidiary reporting standard (implemented but information not public yet)
  • Disclosure of the tax returns of every South African

In addition it is critical that SA implements General Anti-Tax Avoidance (GATA) Act. This will go a long way towards SA addressing the structural problem of tax under collection; a crucial step in addressing the problems of wage and tax evasion. Moreover, it is essential that the SA government shows strong commitment to the long-term solution of a unitary tax system, while working on pragmatic medium-term solutions, such as the introduction of a global minimum effective corporate tax rate. 

The Alternative Information and Development Centre (AIDC), has compiled a comprehensive study investigating the current state of tax and wage evasion in South Africa published in June 2019. Access it here 

For more information contact: Dominic Brown – AIDC Economic Justice Programme Manager

 
Posted in AIDC, Press Releases

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