Tax evasion hinders development in Zambia

REPORT | 21 May 2013

Tax avoidance is a problem that affects many countries, but creates additional negative effects on efforts to eliminate poverty in developing countries in particular.

Many developing countries lose legitimate tax revenue through both illegal tax evasion and aggressive, though legal, tax planning. A large part of tax avoidance is related to the tax planning of international enterprises. Tax avoidance in developing countries leads to a situation where states collect less income for the purpose of investment in poverty alleviation. Calculations conducted by Global Financial Integrity (GFI) in Washington show that developing countries lose at least 783 billion USD every year through illicit financial flows, including tax avoidance. This figure represents an amount many times that of the world’s collective aid budget to the same countries.

Swedwatch has investigated how some of Sweden’s largest multinational corporations; Ericsson, Atlas Copco, Sandvik and SKF reason and act in regard to tax payments in developing countries and in Zambia, specifically.

Within the framework of this study, Swedwatch has not been able to find that any of the four researched companies are guilty of unethical or illegal tax evasion from developing countries.

Swedwatch has concluded that, despite the fact that all of the four corporations have substantial operations in Zambia, there is, in principle, no information about Zambia in the corporations’ annual accounts statements and none of the corporations wishes to reveal any figures regarding profit and tax payments in Zambia. None of the companies have, to date, defined how they manage tax planning globally as an issue of corporate responsibility.

The Dutch independent research organization SOMO has made similar research findings in their report Should the Netherlands sign tax treaties with developing countries? published in June 2013. The report shows that Dutch double taxation treaties or agreements lead to huge revenue losses in developing countries because they reduce taxation on passive income.

Made in collaboration with: Diakonia