Corporate tax is a feminist matter

EU Tax haven protest via GUE/NGL Flickr
EU Tax haven protest via GUE/NGL Flickr

CitiGroup, Coca Cola, ExxonMobil, General Motors, Goldman Sachs, Verizon, Wal-Mart, Pfizer, JP Morgan Chase, Bank of America and Microsoft; of all the things these multinational corporations (MNCs) agree on, two things stand out: a proclaimed devotion to the feminist agenda and a penchant for tax dodging.

On the former, all MNC’s claim to dedicate some part of their corporate responsibility and philanthropy duties to the “economic empowerment” of women and girls in poor countries, and to that end, promote business skills, good saving practices and access to loans as a panacea for women’s empowerment and their countries’ development. The steps these corporations take “to advance and empower women” make them role models for gender justice among MNC’s, according to the United Nations Global Compact.

But then there’s the tax issue. A few months ago, the NGO Oxfam calculated that between 2008 and 2014 alone, the 50 largest public companies in the US accumulated some $337 billion in tax breaks, while holding a whopping $1.4 trillion in offshore cash reserves. All the companies mentioned above are on the list.

Tax dodging by MNCs represents “integral components of [their] profit-making strategies,” and a huge force of socio-economic devastation in particular for the Global South, where such taxes represent a larger share of overall government revenue (16%, according to the IMF, versus 8 % for their high-income counterparts), and where the technical capacity to deal with complex tax offshore investment hubs and other loopholes is weaker. Here, Oxfam argues, unpaid corporate taxes can make the “difference between life and death, poverty and opportunity.” The practice costs poor countries around US$ 100 billion dollars a year.

The result, predictably, is that across Africa, the working poor, (over 38% of the population in sub-Saharan Africa) often end up carrying the burden of raising tax revenue while the multinationals go scot-free. In Malawi, for example, where tax incentives for the mining sector allegedly suck out eight times the amount the government collects in revenues every year, some say that “it is the order of the day for small businesses to pay more tax than multinational companies.”

Meanwhile, as a new investigation reveals, South African companies make extensive use of tax haven benefits in the Netherlands, where, apparently, “an office with a house plant is enough to satisfy tax inspectors that a company really has operations in [Amsterdam],” rather than just a letterbox company. (By routing money through the Netherlands, companies reportedly push down their tax rate from to as low as 0,6 %. Of the 20 largest companies listed on the Johannesburg stock exchange, 14 have one or more subsidiaries in the Netherlands).

Within progressive feminist groups and anti-poverty NGOs, tax justice is now treated as a key development and human rights concern, with many feminists pointing out that it’s women and children who suffer the most, when social services are not provided.

Chiara Capraro worked for Christian Aid, whose Death And Taxes report estimated, as early as 2008, that developing countries lost more to false invoicing and trade mis-pricing by corporations (more on that later) than what comes in as development aid. Later, in partnership with Tax Justice Network Africa (who tweet here), they published “Africa Rising” which (amongst other things) outlines steps on how to stop corporations and other elites from abusing tax loopholes. To Chiara, who is now Policy and Advocacy Manager for Women’s Economic Rights at Womankind in London, corporate tax is a feminist matter and a huge potential source of empowerment for women, if given the chance to learn about, and organize around it.

Given that this type of gender-responsive tax literacy typically doesn’t make it into conventional financial literacy curriculums or economic empowerment classes, we asked Chiara to give us an idea of what such lessons may look like.

We read that the “tax system is rigged” and that it allows western corporations to dodge their tax contributions in Africa. But what IS this international tax system? How does it work? Who controls it? Can you make it easy for us?

It’s important to clarify from the outset that most of the practices that fall under the umbrella of “tax dodging” are currently not illegal. This is due to the fact that the rules governing how companies are taxed have not kept pace with the changing nature of global business. These rules were designed in the 1920s when big global conglomerates did not exist as we know them now. As a result, the various subsidiaries that are part of a single transnational corporation are now taxed as separate companies. This enables them to shift profits to low or zero tax jurisdictions (tax havens) and minimize tax payments. Not only profits can be shifted to wherever it’s most convenient, but also they can be inflated or deflated – this is called “trade mis-pricing.” Since currently 80% of global trade takes place within transnational corporations this practice has huge consequences.

So, to make it simple, if I inflate the profit I make from selling a product or a service between two subsidiaries of my company and I book that profit into a low tax jurisdiction I make sure I minimize my tax payments. This is currently legal to do. Still confused? At Christian Aid we tried to explain it with a banana, and in this video we explain where all the money has gone. In addition to the ability of minimizing their tax bills with their own strategies, corporations have also enjoyed falling tax rates over the past decades:  according to KPMG the average corporate tax rate worldwide went down from 38% in 1993 to 24.9% in 2010. And the boon doesn’t end here:  in their competition to attract foreign direct investments, many developing countries are using further tax incentives for corporations, which has created a “race to the bottom.” To illustrate this, the IMF found that in 1980 no low-income country in sub-Saharan Africa had tax free zones but 50% did so in 2005. Whereas 40% of sub-Saharan African countries were offering tax holidays in 1980s, 80% did so by 2005. Tax incentives are most often offered on an ad-hoc basis, without adequate cost benefit analysis. The special economic zones that are created for these companies often have poor labour conditions, bans on trade unions and environmental pollution.

The question of “who makes the rules” is a good one, because this is at the heart of why the tax system is seen as broken. Largely it’s the Organization for Economic Co-operation and Development (OECD), a group of northern and large middle-income countries that governs the global tax system. Developing countries are currently excluded from decision making processes on global tax rules and the OECD itself has acknowledged that its reform efforts do not respond to the particular concerns of poorer countries. Tax justice campaigners feel that decision making needs to be democratized and brought under UN auspices to truly represent the concerns and needs of all countries. Discussions on establishing a Global Tax Body dominated the 3rd Financing for Development Conference, which took place in Addis in July 2015. It revealed the deep fault lines between northern powers and southern countries on this issue. 

Recently, the Zambian tax activist Cecilia Mulenga said that her friend, who was eight months pregnant when she died of complications, would still be alive “if these corporations were paying their fair dues.” And a nurse from Malawi blames the long waiting hours for patients and her own feeling of failing as a nurse on corporate tax breaks. Is the issue that simple? It’s not as though corporate tax revenue would actually go straight into health or education budgets, right? What’s your view on this? 

This is a fair concern – would additional revenue be spent where it needs to be spent? For example, to fund programs to prevent violence against women or maternal health nurses? Unfortunately, we cannot draw an automatic causal link. We know that neoliberal economic doctrine predicates both tax cuts for the rich and cutting back on public expenditure so both sides of the coin need to be challenged. Often the lack of a precise causal link between revenue raising and expenditure is used to dismiss claims for tax justice. Corruption is often used as well as a reason for why we shouldn’t bother too much about raising more revenue, as it will all be squandered. However, research by Global Financial Integrity has found that bribery and theft by public officials represent only 3% of cross-border illicit financial flows. In contrast, the proceeds of commercial tax avoidance represent 60%-65%. So although corrupt public officials are an issue, this can’t be used as an excuse to skirting around the issue of tax. Publicly funded, universal essential services led to huge progress in human development in Europe after the Second World War. And tax revenue is the most accountable source of funding, which should be raised and spent to realize the rights of all.

You’ve said that tax justice is a feminist issue. How does that apply to Africa?

Yes, I believe tax justice is a feminist issue for at least three reasons. Firstly, because the immediate consequence of tax dodging is a loss of resources needed to realize women’s rights. Over the last 30 years we have seen many good laws for women’s rights.  However, resources have not followed so such plans have very often remained on paper.  Secondly, women’s economic activities are disproportionately impacted by the current unfair tax system. Over 70% of women in sub-Saharan Africa work in the informal economy, mostly without access to contracts, maternity and sick leave and social protection. However, they still pay tax in the form of Value-added Tax (VAT) and an array of local taxes. Christian Aid’s research in Ghana found that 96% of women traders who worked in markets in Accra paid up to 37% of their income in taxes, with no access to social protection. If we don’t tackle the big players it is these women who keep shouldering an unfair tax burden. Very often discussions on women’s small businesses focus on access to credit, financial literacy and skills but it’s critical to also look at tax issues.

There is also a third and more radical feminist issue. Corporations are currently reaping the benefits of women’s unpaid care work, which subsidizes the productive economy and reproduces the workforce of today and tomorrow. Since this work is generally invisible in economic policy there is no assessment of the resources needed to support it and where they should come from.

Given that Western corporations seem particularly harmful, do you believe there is a special responsibility for the Western women’s movement? Is it on their agenda yet? 

Tax is a global issue, so I believe it is critical to build solidarity across borders between feminists on these issues. While it is true that transnational corporations are able to avoid paying their fair share of tax in both northern and southern countries, the effects are felt much more in southern countries, which have greater need to collect resources to provide health and education services and build social and physical infrastructure. In the UK, where I live, there has been an increased concern from feminists around the impact of austerity measures on women’s rights, but I think we still need more awareness on the issue of tax. Feminists can take up this cause first of all by educating themselves on why this issue is critical, learning the impact of tax dodging around the world, holding corporations and governments to account on their practices and pushing for political reform. There is a huge need to demystify issues of tax. It’s not something that only experts can talk about, it matters for us all, so we have to understand and engage with it.

From what you’re telling us, tax justice seems connected to literally every social justice issue – from gender justice and development to health and education. This suggests that whenever we talk about women’s empowerment, health and education in Africa, we cannot leave tax out of the equation. Is that right?

That’s exactly right. I feel very strongly that as feminists we need to interrogate much more whether economic policy is working for women’s rights and broader human rights. Tax policy really is a crucial piece of the puzzle. It has to do with who has power and who doesn’t. With who gains and who loses. There is strong scholarship and activism on these themes from feminist economists, but there is a need to demystify the issues them and make sure we feel confident in talking about them. Gender justice ultimately is not going to come for free, the same can be said for health, education, preventing violence and redistributing responsibility for unpaid care – all necessary steps along the way.

Maria Hengeveld

Maria Hengeveld writes about feminisms, inequalities, multinational corporations and economic justice; sometimes in Dutch.

2 Comments
  1. As a feminist, I agree that we need to consider whether economic policy is working for women’s rights and broader human rights. But there is a danger of getting carried away with wishful thinking on the amount of money at stake from multinationals ‘dodging’ taxes in the poorest countries.

    This article contains some basic misunderstandings: 80% of trade does not take place within multinational corporations, rather UNCTAD estimates that 80% of trade takes place within value chains associated with multinational corporations (such as when a farmer sells a product to a processor, who then sells it on to a multinational food company). The difference is critical since “transfer pricing” which relates to tax concerns transactions between subsidaries of the same company.

    The statement that bribery and theft by public officials represent only 3% of cross-border illicit financial flows while 60-65% comes from the proceeds of commercial tax avoidance is much quoted but is not supported by robust evidence (and It offers a convenient argument for corrupt politicians to divert attention!).

    You say that it is legal to mis-price internal transactions in order to shift profits across borders. This is not true. Most countries have some version of the arms-length principle in place which means that internal transactions within a multinational group should be at comparable open market prices. While there can be questions how to determine the right price, it is simply a misunderstanding to suggest that the current tax rules allow profits to be shifted to wherever it’s most convenient, by artificially inflating or deflating prices.

    Nevertheless, there is enough leeway that companies can chose to locate mobile, high-value parts of their activities in places that give them a tax advantage (i.e. “profit shifting”). As you say UNCTAD estimates that revenue losses from one form of corporate profit shifting in developing countries amounts to around $100 billion a year. This estimate includes all developing and emerging economies, and mainly relates to major economies such as China, Brazil, Argentina, Malaysia and South Africa. It would be a mistake to assume that this sum of money relates to taxes lost to least developed countries or to Africa. (more here: http://www.cgdev.org/publication/can-stopping-tax-dodging-multinational-enterprises-close-gap-development-finance )

    To put the number in context, domestic resource mobilization (i.e. government revenues from taxes and royalties) in all developing countries amounts to around $7.7 trillion. Is it really possible that an additional $100 billion can be the “difference between life and death, poverty and opportunity” ?

    Issues of taxation and development are serious, but they need to be addressed with clear evidence and not with myths – otherwise there is a danger of diverting attention from broader understanding of domestic priorities for tax strengthening and from difficult issues such as corruption.

  2. Ditto Maya. Your argument would be stronger without all the casually claimed implied causations. Tax dodging = bad. Of course. More taxes = more service delivery. Not nearly as evident. As someone self-employed in the private sector in Africa, I am not persuaded that tax-paying is always the most effective way to spend resources for the benefit of a country’s development. Tax-dodging is not a non-issue, but I’d say it pretty low on the list until you get other things sorted out.