A/HRC/31/61 average wealth per client is growing. 14 This means that the global reduction in tax revenues accrues almost entirely to the wealthiest. In this way, moving funds abroad to facilitate tax evasion promotes and perpetuates wealth inequality. 14. A common commercial tax-evading practice is trade misinvoicing. This involves falsifying trade documents, such as customs forms. By underinvoicing exports and overinvoicing imports, tax evaders can move assets out of countries and into secret bank accounts and shell companies in tax havens. 15. According to Global Financial Integrity, trade misinvoicing is the most common way of illicitly moving funds out of developing countries. The organization has estimated that trade misinvoicing accounted for more than 80 per cent of all illicit outflows between 2004 and 2013 — an average $655 billion per year — and that it roughly doubled in magnitude over this time period.15 An analysis by the organization shows that in 7 out of the past 10 years, the global volume of illicit financial outflows from developing countries — of which trade misinvoicing constitutes the vast majority — was greater than the combined value of all ODA and foreign direct investment (FDI) flowing into poor nations.16 16. Importantly, these estimates are thought to be conservative since they account for only one type of trade misinvoicing, known as “re-invoicing,” which occurs when goods are exported under one invoice, the invoice is then sent to another jurisdiction, such as a tax haven, where the price is altered, and finally, the revised invoice is sent to the importing country for clearing and payment. They do not account for misinvoicing on trade of services and intangibles — approximately 20 per cent of world trade —, nor does it capture “same invoice faking,” where misinvoicing occurs within the same invoice as agreed between exporters and importers. A study by Global Financial Integrity has found that tax revenue losses to developing countries due to re-invoicing alone amounted to $98 billion to $106 billion per year between 2002 and 2006.17 B. Tax avoidance 17. While tax evasion, which breaks national tax laws, is openly illegal, a number of corporate tax avoidance schemes use very complex methods to make it very difficult for tax authorities to provide sufficient proof that they are in contravention of national laws and regulations. The overall effect of those practices is to reduce the corporate tax base of many countries in a way not intended by domestic policy. In addition, tax avoidance by transnational corporations harms society by avoiding a “fair share” of the tax burden. 18. A common method of corporate tax avoidance is “profit-shifting”, where transnational corporations take advantage of tax rate differentials across jurisdictions and shift taxable income and assets away from source countries, where economic activity takes place, and into associated companies in tax havens, sometimes with no real staff or business activities. 19. Like tax evasion, tax avoidance results in tax revenue losses for both developed and developing countries. UNCTAD has estimated tax revenue losses to developing countries 14 15 16 17 6 See Zucman, “Taxing across borders” (footnote 6). See D. Kar and J. Spanjers, “Illicit financial flows from developing countries: 2004-2013”, Global Financial Integrity, p. 1 and 10 (2015). Ibid. See A. Hollingshead, “The implied tax revenue loss from trade mispricing”, Global Financial Integrity. p. 1 (2010).