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TJF 2-1 On-Screen TAX JUSTICE FOCUS the quarterly newsletter of the first quarter 2006 volume 2 number 1 Pulp reality,tax fiction Trade issue The building of a huge pulp factory in Uruguay by Finnish company Botnia not only Letter from Davos 2 represents a threat to the environment. Thanks to the various tax exemptions the Letter from Bamako 3 company has secured, the Botnia investment will bring little real benefit to the country’s economy,writes Jorma Penttinen. Campaigns and TJN news 4 The supply side of corrupt he benefits of foreign direct invest- and according to the calculations pro- the pulp mills on environmental grounds. practices 7 ment are more or less taken for duced by Botnia, the factory would in- According to an opinion poll carried out T Media roundup 7 granted. The transfers of technology, crease the country’s GDP by 1.6 per in August 2005, just over half of Uru- employment opportunities, direct cent. guayans opposed the pulp mills. The is- The WTO and taxation 10 money flows, and revenues for local and sue will be referred to International state government are seen to benefit Botnia’s investment is explained by lower Court of Justice by Argentina, and the Mind the tax gap 11 the host country. costs: fast growing eucalyptus trees and presidents of both countries will meet in cheap labour mean that production costs the near future to discuss the two pulp The hidden face of corporate It was no surprise then that Uruguay are half of those in Finland. The pulp is mills. corruption - unmasked 12 was more than keen to accept the not destined for South American mar- building of huge pulp factories on the kets; it will be transported to Europe As well as the environmental concerns, Reviews and new research 13 banks of river Uruguay, on the other and China. there is another more complex question side of which is Argentina. of whether the Botnia investment will Calendar 15 The Finnish-owned Botnia the company will There are, however, dark bring any real benefits to the Uruguayan factory would produce not pay income clouds over the Botnia project. economy. one million tonnes of pulp tax under the free Civil society organisations in Editor: Jenny Kimmis email: [email protected] when operating, and the trade contract Uruguay and Argentina, which In Finland, Botnia currently has five pulp Published by the Tax Justice Network Spanish-owned Ence lies just across the river, share mills. Their combined production is 2.7 International Secretariat Ltd would be half that size. concerns about the environmental im- million tonnes – only three times that of © Tax Justice Network 2005 For free circulation pact of the mills. Protest has been par- the Botnia mill in Uruguay – and they Botnia’s plant will be the biggest ever ticularly strong in Argentina, where the employ directly some 1,600 people. The ISSN 1746-7691 foreign investment in Uruguay’s history, president has also voiced opposition to mills are situated mainly in small towns FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS and are very important to the surround- struction period the project will employ ment means that this power is trans- ing communities. To the local municipal- around 4,500 people, and later there will ferred to foreign companies. This is a Letter from ity, the personal income tax of the com- be some 300 people working in the mill. great loss to democracy. pany employees is the most important It is estimated that the pulp mill will gen- benefit; and in a good year the company erate 8,000 jobs indirectly, mainly in the The Finnish state is selling itself short by Davos taxes equal this. There is also a property eucalyptus plantations. According to Bot- supporting this kind of investment. Free tax which goes directly to the local mu- nia, the project is already the biggest trade areas and the many tax exemptions Lucy Komisar nicipality. The benefits from dividend private employer in Uruguay. available give transnational firms a green avos is not my idea of where to taxes and VAT are paid mainly to the light to avoid their social responsibility Dhold a meeting. It is cold at the end state. But when Ricardo Carrere of the World by not paying taxes. Until now, transna- of January, and though the views of Rainforest Movement was asked what tional companies that are at least seen as snowy Swiss hills are charming, the town In Uruguay, Botnia has been able to ne- financial benefits the pulp mill will pro- Finnish (for example, only 10 per cent of is not – just a long street lined with gotiate itself free of these kinds of obliga- vide, his answer was “none”. He had Nokia shares are actually held by Finns) shops, hotels and restaurants. Yet an tions. The land area was rented for seen pulp mills in Indonesia, South Africa, have been able to use their financial entrepreneur named Klaus Schwab knew $20,000 for 30 years, which is practically Brazil, Chile and Finland, and argued that power to influence policy on foreign in- that powerful people in business and nothing. The special legislation of the the vast Uruguayan mill will diminish into vestment. politics would come to network with Zona Franca free trade area will guaran- a small one when all tax exemptions and their peers – each group being bait for tee that Botnia does not have to pay any subsidies are taken into account. A big political issue in Finland at the mo- the other – and that corporate journal- customs duty on machinery and equip- ment is the announcement by paper ists would show the rich and powerful ment imports; which equals nearly one Basically, the pulp mill will not pay any company UPM-Kymmene that it plans to their usual reverence. hundred million euros tax relief in a bil- taxes. As Carrere explained, the harvest- reduce its workforce in Finland by 3,600 lion euro project. The majority of the ing of eucalyptus trees is supported by people over the next two years. It seems So the World Economic Forum in Davos equipment is manufactured in Finland. tax relief and the state is building roads, particularly odd that the Finnish embassy has since 1971 been a magnet for busi- port facilities and other infrastructure in Uruguay should be vigorously support- ness people, whose companies now pay Furthermore, the company will not pay for the company. ing the Botnia investment at such a time. about $20,000 to ‘belong’, $10,000 each income tax under the free The project is seen in Uruguay and Ar- profits will mainly to attend the meeting, $78,000 to be an trade area contract. It will Carrere does believe, how- gentina – and also in Finland – as ‘a Fin- ‘Annual Meeting Partner’, and $250,000 pay source tax on divi- be given in the form ever, that the increase in nish project’, yet the benefits for the each year to be an ‘Institutional and/or dends, services and assem- of dividends to GDP will indirectly benefit Finnish state and people are very ques- Knowledge Partner’. Politicians are only bling work. Uruguay. The growth of GDP tionable. foreign shareholders too happy to come to connect with po- and thus exported and major foreign investment litical financiers with such deep pockets. The profits will mainly be will improve the image of the The WEF website says “The Forum is given in the form of dividends to foreign country in the eyes of international under the supervision of the Swiss Fed- shareholders and thus exported out of monetary institutions, banks and inves- Jorma Penttinen is a freelance journalist and the eral Government.” The Swiss official de- the country. Even though the production tors. coordinator of TJN Finland. votion to profitable tax evasion explains costs are half of those in Finland, the e [email protected] why TJN is not among the handful of pulp will be sold at the world market The problem is that future investors will NGOs invited. price. certainly demand equal treatment from the state, and the companies will con- Since 2000, however, two Swiss NGOs, It has been estimated that pulp mill will tinue to avoid paying taxes. A factory of The Berne Declaration, which is a TJN add $200 million per year to Uruguayan this size is a powerful economic agent in member (one of its staff, Andreas Miss- GDP, and that it will generate some $25 a country like Uruguay; granting tax ex- bach, serves on the TJN steering com- million annually in taxes. During the con- emptions to encourage foreign invest- mittee), and Pro Natura, the Swiss 2 FIRST QUARTER 2006 volume 2 number 1 TAX JUSTICE FOCUS branch of Friends of the Earth, have After a morning press conference at the breaches the barriers and lines of secu- sponsored the Public Eye on Davos to Evangelical Church community centre, rity police and confronts the world's Letter from provide an alternative to the neo-liberal, the big afternoon event was jammed powerful CEOs. profit-centred focus of WEF with members of the public and media, (pronounced ‘wef’, rhymes with ‘Jeff’). and, in good humour, was hosted by The most significant political event of Bamako Swiss cabaret artist and actor Patrick January in Davos was a statement re- The Public Eye initially ran alternative Frey. Amnesty International Secretary leased by the International Confedera- Emma Lochery conferences. For the last two years, it General Irene Khan gave an incisive tion of Free Trade Unions (ICFTU), y first night in dusty Bamako, has given alternative ‘awards’ for world- speech.
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