The IFC’s incomplete approach to offshore abuse of aid

December 9th, 2011

The World Bank Group’s new policy on offshore financial centers will aim to improve the effectiveness of its private sector arm by helping countries tackle tax evasion but effective rules must be made for partner companies.

As part of the World Bank Group, The International Finance Corporation (IFC) has a mission to promote development. The IFC uses public aid money, to fund private companies’ operations in poor countries, which should generate growth and increased government revenues. But reports by IBIS and Eurodad found these companies using tax havens, taking revenue from those countries that they are meant to benefit.

To prevent is partners from undermining its mission the IFC should require transparency from companies that it funds. Firstly by demanding sufficiently detailed country-by-country reporting and secondly requiring beneficial ownership disclosure; meaning a company must reveal all subsidiary companies that it owns a stake in or exercises control over. By setting an example of good practice for governments to follow the IFC could really leverage its impact and ensure the private sector contributed much more to development by paying its share of tax.

Development institutions are meant to pioneer good practices and the fact that public funds for development are channeled into tax havens is a scandal in itself. The World Bank Group’s new policy will take concrete steps “to improve transparency” and to “ensure that its private sector operations are not used for tax evasion” but UN principles which this policy is supposedly based on, clearly say tax avoidance must be prevented too.

The new policy will help countries to cooperate on tax matters by sharing information, but it will only promote the weak standards of the OECD Global Forum process. Bolder steps should be taken requiring the main users of tax havens – companies and financial intermediaries to be transparent, disclosing their identity, financial performance and relevant details of their activities in each and every country where they operate.

Written by Alex Marriage

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