Tax avoidance ripping off developing countries

Australian companies are ripping billions off developing countries, according to Oxfam’s “Hidden Billions” report, released this month.

How do they do it? A Melbourne corporation sets up a branch in a tax haven, say Hong Kong. That branch doesn’t need much to exist legally – just a business number and registered address. It loans money to a third branch of the company to set up operations in a developing country, say Papua New Guinea.

This third branch conducts real business, say logging. The money made by this third branch, however, is used to pay off the loan, and is not registered as profit. The cash flows to the tax haven “creditor” without being taxed in PNG, depriving the poverty-stricken nation of government revenue. If the Hong Kong branch of the company demands higher interest payments from the PNG branch, the untaxed cash flows out of PNG faster and for longer.

Schemes like these cost developing countries more than $230 billion annually.

The real losers are workers and peasant, who are deprived of essential services such as sanitation, vaccinations and other health care and educational facilities.

It’s just one more example of how capitalism is rigged for the rich.