An Extractive Affair

Malawi, the poorest country in the world, has lost out on US$43 million in revenue over the last six years, from a single company: the Australian mining company Paladin. This money has been lost through a combination of harmful tax incentives offered by the Malawian government, and tax planning using 'treaty shopping' by Paladin.

Tax matters. Tax pays for public services such as education, health care and social services; these services are particularly crucial for women, who often end up as unpaid providers in the absence of decent public services. Tax also pays for infrastructure to provide clean water, functioning roads and communication systems, all of which are essential for a country to develop and for business to operate.

For most countries, tax revenue is the most important, sustainable and predictable source of public finance. Particularly for the poorest countries, tax revenue is key in ensuring that they are able to fund their development without being reliant on foreign aid.

Ensuring that enough tax revenue is raised to fund essential services and infrastructure projects should therefore be a key priority for all countries - but developing countries lose billions of US dollars in potential tax revenue each year by giving international companies harmful tax breaks, while some international companies work towards arrangements allowing them to pay less tax in developing countries, facilitated by the global network of tax treaties. The combined effects of harmful tax breaks for corporations and corporate tax planning is devastating the economies of developing countries.

In our previous reports, we have exposed the detrimental effects on development of tax dodging by multinational companies. This new report further demonstrates that rather than being isolated cases, this is business as usual for corporations operating in poor countries. The solutions to tax-dodging by multinational companies must therefore be addressed on a systematic rather than a case-by-case basis.