Illicit financial flows hamper development in poor countries. A government-appointed commission proposes a number of measures to reduce the adverse effects of tax havens. The Commission on Capital Flight from Developing Countries has studied tax havens and illicit financial flows from poor countries. Minister of the Environment and International Development Erik Solheim will receive the commission’s report on tax havens and development. One of the serious consequences of illicit financial flows is that they undermine development in poor countries. Capital flight from developing countries is about ten times greater than the development aid these countries receive. The report proposes a number of measures to reduce the adverse effects.
“The financial crisis has led to international recognition of the need to take resolute action to put tax havens under international control. The report is important, not least because the proposed measures could lead to a win-win situation for rich and poor countries alike,” said Erik Solheim.
The commission has been chaired by Professor Guttorm Schjelderup, and Eva Joly has been among its members. It calls for a more ambitious development policy aimed at securing poor countries’ tax revenues and reducing the possibilities of extensive corruption. Norway itself should also introduce a mechanism to control the activities of Norwegian nationals who register companies or open accounts in tax havens.
“Tax havens hamper growth in poor countries because they make it easier for the power elites to enrich themselves at the expense of society as a whole and undermine the establishment of effective tax systems in such countries,” said Professor Schjelderup.
Norfund, the Norwegian Government’s investment fund for private sector development in developing countries, Thailand, the Philippines, Indonesia, Vietnam, Cambodia and Laos included, is discussed in great depth in the report. It is proposed that the practice of channelling investment funds through tax havens should be discontinued over a three-year period.
“We can’t allow Norfund to channel Norwegian aid funds through tax havens at the same time as we are trying to fight them,” said Erik Solheim.
The proposals made by the Commission on Capital Flight from Developing Countries include: Considering whether Norwegian multinational companies should be required to submit more detailed annual statements, improving the rules for transfer pricing, establishing a Norwegian centre of expertise on tax evasion, developing networks with a view to increasing international pressure, changing tax agreements to ensure that it is a company’s real business that decides in which country it is subject to taxation and negotiating an international convention to combat the harmful structures in tax havens.
