By Tim Hirschel-Burns
Tax simplification would level the playing field between tax authorities and multinationals by relying on easily verifiable standards.
With one of highest rates of poverty in the world, Sierra Leone may wish it could magically acquire a source of wealth to relieve its struggles. Yet, it already has one: it is one of the world’s largest producers of diamonds and other minerals.
The problem is that much of the benefits end up in tax havens. For example, leaked documents revealed that one of the country’s largest diamond mines undervalued sales to its subsidiaries in tax havens by as much as 35%, illicitly reducing revenue that Sierra Leone could have used for schools, hospitals, and roads. In total, the estimated amount of revenue Sierra Leone loses to tax abuse is nearly 1.5 times its entire health budget.
Many African countries are in a similar position: resource-rich and money-poor. The conventional wisdom is that they should fight corporate tax avoidance by performing their best imitation of tax systems in the Global North. But this fight takes place on a profoundly unequal playing field. On one side, there are typically under-resourced and undertrained national tax authorities. On the other, there are multinational companies employing teams of top lawyers and accountants. Moreover, rich countries suffer significant losses to corporate tax avoidance too.
Fortunately, there is a better alternative: tax simplification. As I argue in a recent paper in the Yale Journal of International Law, African governments can fight tax avoidance and level the playing field between their tax authorities and multinational corporations by adopting rules that reduce administrative burdens and rely on easily verifiable standards.
