Paying Taxes to Assist the Poor? Balancing Social and Financial Interests
This paper reviews the issue of efficient tax planning by microfinance investors taking issues of fairness and justice into account. The issue of tax avoidance has emerged as a global issue that affects both developed and developing countries alike and recently microfinance investors have been accused of avoiding taxes. The paper examines practices such as special purpose vehicles (SPVs), tax treaties, profit shifting, and offshore financial centers. It states that microfinance entities allocating capital to these SPVs, should invest in the country where the activities take place. This results in investees paying taxes locally and stimulating the local economy and society. Key recommendations for investors, NpM members, multilateral organizations, and governments include:
- Microfinance investors should adopt and disclose their policy on development, the use of microfinance holding companies, and SPVs in relation to achieving that development;
- NpM members should not deliberately seek to let fiscal considerations determine their investment policies and pay their fair share of taxation in the developing countries in which they invest;
- Multilateral organizations should acknowledge the distinction between multinational companies and investors and the motives they have for investing in SPVs and holding companies.
