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  • Activists from Oxfam and Transparency International protest in front of the European Commission headquarters, Brussels, April 12, 2016.

    Activists from Oxfam and Transparency International protest in front of the European Commission headquarters, Brussels, April 12, 2016. | Photo: AFP

Published 12 April 2017

As Ecuador becomes the first country to ban public servants from using tax havens, top U.S. companies increasingly rely on them to stash profits.

Top U.S. companies stashed a staggering US$1.6 trillion in tax havens, a practice that also sucks US$100 billion annually from poor nations, according to a new report from Oxfam. While U.S. President Donald Trump's promise to “drain the swamp” appears to have fallen on deaf ears, Ecuador’s efforts to combat tax havens continue to set world standards.

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According to Oxfam’s report “Rigged Reform,” 50 of the biggest U.S. companies including Exxon mobil, General Electric, Microsoft, Apple and Wal-Mart stashed a US$1.6 trillion in offshore tax havens. Apple was ranked the top company, as it was able to move US$200 billion offshore.

Since its 2016 report on tax havens, Oxfam said that these corporations “have deepened their use of tax havens, and boosted their investments in building political influence to push for even greater tax breaks than they already enjoy.”

While the practice of moving money offshore is legal and has become standard practice for large corporations, it still creates considerable a burden for those outside the upper echelons of wealth, particularly for developing countries.

The report cited U.N. estimates that tax dodging practices by multinationals stripped US$100 billion every year from poor countries, stifling their ability to invest in schools, hospitals and vital infrastructure to help reduce poverty and underdevelopment.

Developing countries are also more reliant on taxing large businesses to form their national budgets, compared to richer countries. Revenue loss to developing countries sits 30 percent higher than for OECD countries because of the moving of profits, according to the International Monetary Fund.

Oxfam reported that the US$100 billion lost annually from poor countries amounts to four times what the 47 least developed countries spend on education and could provide safer water to more than 2.2 billion people. 

Amid the greed of profit shifting activities and on the back of last year’s Panama Paper’s scandal, there is an increasing awareness that the practice is immoral and unethical. Ecuador is one country where this has been most apparent.

Coinciding with the first round of the country’s presidential election in February, voters were asked in a referendum “Do you agree that, for those holding a popularly elected office or for public servants, there should be a prohibition on holding assets or capital, of any nature, in tax havens?”

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The vote passed, making Ecuador the first state in the world to ban officials in public office from having assets or capital in tax havens. According to outgoing President Rafael Correa, Ecuador’s rich have stashed US$30 billion — one-third of the country’s GDP — outside of Ecuador.

It is estimated that cutting out offshore haven and tax dodging practices has the potential of lifting 32 million people out of poverty across Latin America.

“Ecuadorean companies that generate wealth and then take it out of their own country, that may be legal, but it will always be unethical and immoral,” Correa said ahead of the referendum.

In contrast to Ecuador, Donald Trump’s election promise to “drain the swamp” from corporate lobbying and donations and fix the “rigged tax” system seems to have all but disappeared. 

“Rather than ‘Drain the Swamp,’ proposed reforms have empowered a group of power special interests, corporate lobbyists and front groups to game the tax code in ways that will harm working families, deepen the inequality crisis,” Oxfam said.

“The president and leaders in Congress must rethink their reforms and build a tax system that works for everyone and not just a fortunate few,” said Oxfam Senior Advisor Robbie Silverman. 

According to the Oxfam report, for every US$1 dollar that the 50 biggest U.S. companies spend on lobbying, they receive US$1,200 in tax breaks. It also noted that several of these companies were involved in powerful lobbying coalitions to pressure governments for more favourable tax regulations, where “gains will go disproportionately to the wealthiest 1 percent.” 

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