Healthcare, education and transport. Tax revenues create the right conditions for countries to invest in the infrastructure for key social functions that form the base for sustainable development.
However, the Mbeki panel (A UN body, The High Level Panel on Illicit Financial Flows) reports that Africa loses out on an estimated USD 50 billion every year due to illegal flows of money due to for example corruption, money-laundering and illegal tax avoidance.
“According to the Mbeki panel, that amount corresponds roughly to what Africa has received in aid over the same period. It is therefore extremely important that Swedfund makes sure that the portfolio companies the right amount of tax in the countries where they operate,” says Petra Brantmark, Legal Counsel, at Swedfund.
It’s not easy to establish how much of the illicit flows are down to tax evasion.
“I do not believe that serious investors today seek to avoid taxes illegally. But the law is one thing, and what is appropriate can be something else,” says Petra Brantmark.
Many people consider that law makers should regulate what types of tax planning may be permitted.
“As a Swedish development finance institution we consider that we have to go further than this. It’s not sufficient to rest on what is legal. Tax is part of our Due diligence. If we detect structures that mean companies in which we intend to invest will pay less tax in a country they do business in than what they should be paying, then there must be strong legitimate reasons not related to tax for us to accept such a structure.”
Our owner’s instructions state that Swedfund shall only invest in sound and transparent corporate structures which do not contribute to tax evasion. Neither may investments be made in intermediary jurisdictions which have been assessed within the framework of the OECD Global Forum Peer Review Process and that have thereby not been approved in phase one or been deemed non-compliant or partly-compliant in phase two.
Demanding full responsibility in tax payments and transparent reporting of tax are issues that are creeping higher and higher up on the international agenda.
“A lot has happened in recent years. The limits of what is acceptable have shifted. In a perfect world we would not only disclose the corporate tax paid by portfolio companies but also other taxes paid by the companies. That information is not easily accessible and at present we cannot verify it. However, through our country-by-country reporting of tax we have come further than many others,” says Karin Askelöf, Senior Manager ESG Affairs at Swedfund.
“In the countries where we operate there are many challenges relating to the lack of effective taxation structures. It is therefore important to continue building strong institutions that can manage the taxes generated by investments and businesses.”
This is how Swedfund works with tax
Tax is part of our Due diligence. Prior to making an investment we check any structures in place to make sure that they are sound. We report on the taxes disclosed in the portfolio companies’ financial statements and we endeavour to report on tax paid, in accordance with a harmonised definition. We also report on tax on a country-by-country basis.