“It is a contradiction to support increased development assistance, yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country” Trevor Manuel, South African Finance Minister, 2008

According to experts’ estimates, cross border illicit financial flows from developing countries amount to US $1.3 trillion each year. More than half of these illicit flows are related to trade mispricing. As a result of multinational companies tax dodging poor countries lose massive financial resources which according to Eurodad member Christian Aid total approximately US $160 billion per year.

Curbing cross border illicit capital flight and tax havens is crucial for eradicating unethical financial behaviour, and a means to boost domestic resource mobilisation as a predictable source of development finance. Eurodad works to improve tax cooperation and financial transparency to prevent cross border tax avoidance and evasion by multinational companies (and individuals).

Over recent years, G20 leaders have expressed concerns about the lack of transparency and cooperation from secrecy jurisdictions and the need to regulate them. In June 2010, EU Heads of State and Government went beyond international agreements and committed to “pushing for a more development-friendly international framework”. However, too little is being done to implement these and other commitments.

In order to address tax evasion and harmful tax practices, and to increase cooperation and transparency, a global binding framework to tackle these issues is needed. Working together with members and other allies, Eurodad advocates for greater transparency and enhanced coordination of taxation systems worldwide. Eurodad also works to ensure that international institutions and treaties do not constrain developing countries’ policy space on this area.

About US$1.3trillion illicitly leave developing countries every year, according to World Bank estimates. This represents a huge loss and a serious development issue. Many of these flows, which dwarf global development assistance, are channeled through tax havens or ‘secrecy jurisdictions’. More than half of this money is driven by transnational corporations’ tax evasion and tax avoidance schemes. Many of these companies come from Europe and many of the tax havens are also European.

Eurodad, together with members and other allies, advocates for the end of tax havens and to ensure that the fight against illicit flows is a key point on the agenda of European governments.

Eurodad believes that for developing countries and their people, a key way to raise funds is through national taxes. Domestic resource mobilisation- raising money from the people for the people- is a reliable source of finance and a preferable alternative to foreign aid, which Eurodad research has consistently shown to be ineffective in many cases and leaves developing countries dependent on donor countries. However, policies on domestic tax, which should ultimately be decided upon nationally, are often heavily influenced by key international players: tax-related conditions and technical advice attached to loans and grants from International Financial Institutions, as well as bilateral tax agreements and investment treaties, all too often undermine the policy space of developing countries.

Such advice and conditions all too often involve lowering domestic tax levels, in a bid to attract foreign investment. This often leads to a country joining the race to the bottom on national tax policies. Low taxes mean lower public funds and a lower quality of public services.

Eurodad works in coordination with Southern CSOs including Latindadd, Afrodad, Jubilee South, and Tax Justice Network Africa and Latin America, to expose the role of private investment in developing countries and tax-related conditions in order to open up the policy space of developing countries.