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Ollila's Challenge

by Matti Ylönen (12/07/06)

The former chairman and CEO of Nokia, Jorma Ollila, turned a new leaf in his career by accepting post as the non-executive chairman of the oil giant Royal Dutch Shell. Professor Owolabi M. Bakre's presentation in Tax Justice Network’s annual seminar at Essex raised an important issue: when it comes to taxes and corporate social responsibility (CSR), Ollila has a huge task ahead.

It should not come as a big surprise that oil companies' relationship with CSR has been a messy affair. Giant oil corporations, with Shell in forefront, have been accused of environmental catastrophes, human rights abuses and of giving support to undemocratic and repressive governments. Amidst the growing public concern some lessons have also been learned.

Apparently, tax issues were not amongst them.

Nigeria is the eight largest oil producer in the world and the second poorest country on earth. Professor Bakre showed that this strange equation turns feasible largely because of the astounding US$521 billion capital flight resulting from tax evasion/avoidance and theft of the ruling elite between years 1960-1999.

The common image of developing countries' capital flight is that it derives from bribes that oil the wheels of government bureaucracy. Although the state corruption is a serious problem that needs to be tackled, the trail of big bucks leads elsewhere.

Professor Simon J. Pak showed in his presentation at Essex that capital flight from Nigeria to U.S. has been primarily result of corporations' mis-priced imports since 1991, and that the capital outflows to U.S. tripled between 1996 and 2005. Boyce and Ndikumana arrived in similar results by using IMF's Direction of Trade Yearbooks, as did Raymond W. Baker in his milestone book Capitalism’s Achilles Heel.

Mispricing is handy tool for corporations that want to avoid their social responsibilities. By manipulating few entries in account books corporations can show negative profits in countries where they operate and show profits in low-tax states, often in tax havens. This is exactly what happens in Nigeria.

The blameworthy get seldom caught. After all, professor Bakre told that the Nigerian tax officials have not been encouraged to any training programs for the past 10 years. Compare that to the high-paid, highly skilled tax planning teams of multinational corporations.

What if someone would show negligence in covering this 'tax planning' and would be caught with pants down? This kind of incidence happened to Shell in 2003 as Nigerian tax authority served Shell with a tax assessment notice of almost US$18 millions for one year’s unpaid taxes.

The company's response? Statement that they are not obliged to pay taxes in Nigeria.

The same corporations that get subsidies and ready infrastructure from the government of Nigeria have decided that paying tax is not part of their responsibilities. Shell has been amongst them, together with many other oil giants. By doing so they undermine not only democracy but also the idea of genuinely competitive capitalism, where winners would be the ones with the best products, not with the most cunning tax advisors.

Correcting this anomaly is the most ambitious and important task Ollila can take if he is to promote the CSR values he endorsed while being the head of Nokia. If companies do not pay their taxes, they have little grounds to speak about corporate citizenship or corporate social responsibility.