Sunday, February 14, 2010

New study: developing nations lost $100bn per year just from re-invoicing

A new report from Global Financial Integrity in Washington studies re-invoicing and concludes that:

"The average tax revenue loss in developing countries was between US$98 billion and US$106 billion."

Re-invoicing, a form of trade mispricing, happens when goods leave a country under one invoice, then the invoice is re-directed to a country such as a tax haven where the price is altered, then the revised invoice is sent to the importing country for the purposes of clearing and payment.

TJN's director John Christensen, a former private sector practitioner in the secrecy jurisdiction of Jersey, where he also worked as a government economic adviser, has observed this practice being carried out as a matter of routine. Raymond Baker of Global Financial Integrity notes of the "pinstripe infrastructure" involved in this practice that:

"Thousands of companies provide helpful mispricing services to tens of thousands of their overseas customers in hundreds of thousands of transactions moving billions of dollars into Western accounts. .” High income countries have an opportunity—and even an obligation—to change the conditions and mechanisms which facilitate these illicit financial flows and severely hinder development.

After all, there are two sides to this equation: an outflow, but also a corresponding inflow, much of which is channeled into the richest countries in the world."

The latest GFI estimate is consistent with a Christian Aid report in May 2008 which estimated that developing countries lose $160 billion per year from transfer mispricing and false invoicing.


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