Ireland's corporate tax regime is not a cost-free option - not if you are part of the developing world, writes DAVID McNAIR.
IT WOULD be an incredibly unjust society where a homeless person on O'Connell Street had to pay €40 back for every €5 you gave them out of your sense of compassion and sensitivity for their plight. Yet this is happening on a global scale every day. It is estimated that $500-$800 billion of illicit money flows out of developing economies every year.
This is around 50 times what it would cost to put every child in the world through primary school. It dwarfs the combined aid budgets of rich countries to poor, which currently amount to $103 billion (€66.7 billion) annually. And it is many times larger than the $40-60 billion the World Bank says would be the annual bill for achieving the Millennium Development Goals, which aim to halve poverty by 2015, if developing countries improved their policies and institutions.
The estimate, from Raymond Baker, a senior fellow at the US Center for International Policy and guest scholar at Washington DC's Brookings Institution, is based on nearly 900 interviews in 28 countries, all conducted on condition of anonymity.
With his interviewees ranging from heads of industry to bankers and customs officers, Baker, whose figures have been accepted by the World Bank, reckons that criminal activity such as the drugs trade accounts for some 30 to 35 per cent of the cash that flows out of developing countries. Corrupt officials hiding bribes offshore account for another 3 per cent.
By far the greatest proportion of the money, he says, some 60-65 per cent, is moved out of the developing world for the sole purpose of evading tax, with the culprits' transnational corporations and other businesses.
Now international development agency Christian Aid, in a report published yesterday, Death and Taxes: the true toll of tax dodging, has taken Baker's figures, which it says are a conservative estimate, and worked out the tax liability.
The developing world not only loses enormous amounts of capital, it is also being deprived of $160 billion in tax revenue a year. If that money was available, and allocated according to current spending patterns, says Christian Aid, it could save the lives of some 350,000 children under the age of five annually, 250,000 of them infants. That's almost 1,000 children a day.
This scenario is just one that Christian Aid explores in seeking to highlight how pervasive the notion of lowering tax liability has become worldwide, either through illegal tax evasion or its legal counterpart, tax avoidance.
It reports from India, Tanzania and Latin America on the social costs to the poor of the tax breaks offered to big business, and analyses the role of tax havens, where, it says, banking secrecy allows abuse to flourish. But it's not just poor countries and their citizens that are losing out.
Here in Ireland, while our exchequer falls into deficit, with tax revenue down by €900 million (Irish Times, March 5th), US software giant Adobe, not content with Ireland's aggressively low corporate tax rate of 12.5 per cent, uses tax havens to minimise its taxable income.
Its two Irish subsidiaries in 2007 had a combined turnover of $2.6 billion but paid just $5 million in Irish corporation tax - an effective tax rate of 0.5 per cent. They reap the benefits of Ireland's infrastructure and highly educated population but drain it financially.
In Ireland, this kind of behaviour results in smaller budgets for health, education and transport. In the developing world, tax dodging can be a matter of life and death.
This is something the Irish Government, which has yet to ratify the UN Convention against Corruption, could help remedy by taking an international lead in promoting an international accounting standard that requires companies to report what they do on a country-by-country basis.
Ireland should also support the Organisation for Economic Co-Operation and Development in its efforts to regulate tax havens, demanding automatic exchange of relevant information with other jurisdictions. All havens must be required to participate, and those that refuse subjected to sanctions.
At present, as the report makes clear, there is an inconsistency in Ireland's approach to taxation. While in recent years it has stepped up its development contribution through aid, it has also transformed itself into a country that facilitates tax-dodging.
Tax, not aid, is the most sustainable source of finance for development, promoting accountability and allowing governments to generate revenue from their own economic activity to invest in their own infrastructure, healthcare and education. Rather than repeat the mistakes of his predecessor, Taoiseach Brian Cowen should take the lead in ushering in a new financial climate of accountability - one that exposes the role of tax havens in undermining developing country governments and contributing to the desperate poverty that condemns almost half the world's children to continued misery.
Dr David McNair is policy and advocacy officer with Christian Aid Ireland