ActionAid has slammed Barclays for claiming to be a “force of good” despite promoting the use of offshore tax havens to big companies operating in Africa. (Photo: Reuters)
African countries are losing up to 12.7% of their GDP to misinvoicing.

African countries are losing up to 12.7% of their national GDP due to shady practices in international trade.

Global Financial Integrity, a Washington DC-based think-tank, reports that $542bn (£321bn) worth of capital was lost from Africa in illicit capital flows and estimates that almost 80% of this coming through "trade misinvoicing".

Misinvoicing is where companies and individuals involved in trade deliberately alter the prices of their exports or imports in order to move money in or out of a country. It can be used to avoid being charged import duties, or to shift taxable income out of a country, into a jurisdiction with a lower tax rate.

The report, entitled Hiding In Plain Sight, examined trade flows into and out of Ghana, Kenya, Mozambique, Tanzania and Uganda between 2002 and 2011. Uganda lost 12.7% of its national revenue over the 10-year period, the highest of the five countries.

GFI cautioned that its methodology is very conservative and "that there are likely to be more illicit flows into and out of these countries that are not captured by the models".

The report made a series of recommendations for government's hoping to combat trade invoicing, including better training for customs staff, higher scrutiny for trade through tax haven jurisdictions and making financial transparency a top political priority.

Brian LeBlanc, one of the economists at GFI behind the report, wrote that while corruption and poor governance in developing countries is a factor, this narrative "fails to acknowledge the role the west plays in facilitating such transactions".

He continued: "The truth behind trade misinvoicing is that it is a two-way street. The global shadow financial system, propped up by tax havens and financial secrecy, is equally responsible for the propagation of trade misinvoicing in Africa. This system of offshore banks, anonymous accounts, and shell companies is largely created by developed countries in the west."

One of the main methods companies use to misinvoice trade is re-invoicing, whereby companies process the invoice offshore in a tax haven. This allows companies to sidestep bribery processes, since the price of the goods have already been manipulated by the time the goods enter the country.

The company will generally have to pay a fee to the company conducting the re-invoicing, generally around 2%.

Richard Murphy, director at Tax Research and a campaigner against tax avoidance, tells IBTimes UK that while international trade remains so steeped in opacity, practices such as this will continue to flourish.

He said: "The most basic rule of efficient markets is transparency. Opaque markets misallocate resources, result in inefficient decisions and can lead to corruption. That's what could well be going on here. While we continue to have substantial opacity in the world, these kinds of things will continue to happen and I have no doubt they are happening."

Murphy agreed with the GFI's findings that the issue of tax avoidance is driven by western companies, some acting legally, others illegally. He said that despite David Cameron's pledge at the G8 Summit in Enniskillen last year, the progress here is pitifully slow and is being hampered by a corporate led lobby movement.

"The big firms of lawyers and accountants are lining up, paid by large corporate clients, to say this transparency is going to be very dangerous to big businesses. Well, why is it dangerous is my question? If you've got nothing to hide, you should be fine. Otherwise, they must have something to hide," Murphy said.

In the UK alone, tax avoidance is estimated to cost the exchequer £35bn a year, according to HMRC. The issue hit the headlines again today when pop star Gary Barlow was found to have invested in a tax avoidance scheme.

Prime Minister David Cameron joined in on the criticism of Barlow, but said that calls to strip the singer of his OBE were not necessary. "I don't think that's necessary, frankly. Gary Barlow has done a huge amount for the country, he's raised money for charity, he's done very well for Children in Need so I'm not sure. The OBE was in respect of that work and what he's done. But clearly what this scheme was wrong and it's right that they're going to have to pay back the money," Cameron said.