The long arm of corporate influence

01/08/2011

By David McNair

Felicity Lawrence is right to highlight the enormous power of transnational companies (TNC) relative to that of many governments (A mere state can't restrain a corporation like Murdoch's, 29 July). She is also right to say that governments will find it increasingly difficult to get tax payments from such entities, many of which make extensive use of tax havens in order to reduce their tax bills in other countries – including the poorest.

What makes the situation even more disturbing is the scale of world trade that now takes place within transnational companies – it is estimated at between 40 and 60% of all trade. This leaves huge scope for unscrupulous firms to manipulate the prices of deals between their subsidiaries in order to ensure their profits wind up in low-tax jurisdictions.

While the OECD has rules meant to prevent such abuse, enforcing them is a challenge for even relatively well-resourced tax authorities such as the UK's. Developing countries have little hope against TNCs' armies of tax lawyers and accountants. This is why Christian Aid and others are calling for TNCs to be required to be more transparent about their finances, revealing the profits they have made and taxes paid in every country where they operate. We also want automatic, multilateral exchange of information between tax authorities to curtail the secrecy offered by tax havens.

Both moves would make life harder for companies and individuals seeking to dodge the tax that governments everywhere need to fund public services.
 

David McNair 

Senior economic justice adviser, Christian Aid