Moran Harari ■ New free book: Combating Fiscal Fraud and Empowering Regulators

A cloudy landscape seen through a keyhole

A new book titled Combating Fiscal Fraud and Empowering Regulators: Bringing tax money back into the COFFERS was published by Oxford University Press in February this year. The book is freely available for download and provides an account of some of the most seminal findings and applications of state of the art tax research that have emerged in recent years. It’s the outcome of a three-year-long EU Horizon 2020 project with the same title. The project, led by Prof. Brigitte Unger, ran from November 2016 until December 2019, and was composed of a multidisciplinary group of researchers from diverse disciplines (economics, accounting, law, sociology, psychology, political science, etc.) working together to assess new international tax policy measures and what they imply for the EU and in many aspects for the world altogether.

The book analyses the impact of new international regulations on the scope and scale of tax abuse and money laundering and to present some of the unintended consequences and loopholes that can arise. Clear Policy recommendations on how to improve the international tax regulatory regime are included on two pages (326-327).

Chapter 6 (written by Leyla Ates, Alex Cobham, Moran Harari, Petr Janský, Markus Meinzer, Lucas Millán and Miroslav Palanský) sets out a new approach to mapping the geography of profit shifting, based on a range of objectively verifiable criteria, utilised in our Corporate Tax Haven Index 2019. It discusses the index’s political implications for the immediate process of international tax reform, and for the longer- term prospects for global governance in this area.

In this chapter, the authors argue the OECD’s Base Erosion and Profit Shifting (BEPS) initiative has failed in reducing the misalignment between the location of multinationals’ real economic activity and where they declare their resulting profits for tax purposes. The authors also focus on three key observations from the new geography of profit shifting, as characterised by the first edition of our Corporate Tax Haven Index:

  • While small islands are still perceived as significant tax havens players, in recent years they are joined by equally important tax havens among EU member states.
  • The global dominance of the UK network of secrecy jurisdictions that was revealed by our Financial Secrecy Index finds a parallel in the dominance of the UK’s corporate tax abuse network, accounting for over a third of the world’s corporate tax avoidance risks as measured by the Corporate Tax Haven Index.
  • The authors show that patterns of colonial exploitation remain central to the widespread existence of double tax treaties with former colonial powers that systematically disadvantage low and lower- income countries.

Chapter 8 (written by Petr Janský, Andres Knobel, Markus Meinzer, Tereza Palanská and Miroslav Palanský) explores the patterns of the large amounts of financial secrecy supplied to the EU. The chapter assesses the progress of two EU policy efforts to tackle financial secrecy: automatic exchange of country by country reporting data by multinationals and black and grey list of non-cooperative jurisdictions. The analysis and policy recommendations build on the Tax Justice Network’s Financial Secrecy Index, which ranks each jurisdiction’s contribution to global financial secrecy, and its bilateral extension, the Bilateral Secrecy Financial Index to estimate which jurisdictions supply most secrecy to the EU Member States.

The authors found that approximately 79 per cent of the financial secrecy faced by the EU is covered by active automatic country by country reporting information exchange relationships. Furthermore, there is considerable heterogeneity in the share of secrecy that is covered by those active relationships across the individual EU Member States. This finding indicates on the potential benefit for policy makers in identifying the most important secrecy jurisdictions for individual countries.

The authors also found that 34 per cent of the financial secrecy the EU is facing is supplied by other EU Member States. The fact that EU member states are by default excluded from the EU list of non-cooperative jurisdictions thus reveals its fundamental flaw. A further 13 per cent comes from the Member States’ overseas countries and territories, mainly from the UK’s Cayman Islands, Bermuda, and Guernsey. More than 75 per cent of financial secrecy faced by the EU comes from high-income countries, and only 6 per cent comes from low and lower-middle-income countries.

The chapter provides two concrete policy recommendations: First, country by country reporting data should be made publicly available by all jurisdictions to enable effective tracking of economic activity of multinational corporations by all tax authorities, as well as by researchers, and the public who would then be able to hold both multinationals and authorities to account. The authors explain that the publication of the data is likely to replace the system of automatic exchange of country by country reporting, as there will be no need to exchange information thus freeing many resources and reducing costs for tax authorities.

Second, until country by country reporting data is made publicly available by multinationals, countries are encouraged to require local subsidiaries of multinational corporations to file country by country reporting data directly with local authorities in case the data is not yet public or if local authorities cannot obtain it via automatic exchanges regardless of the reason.

The book Combating fiscal fraud and empowering regulators: Bringing tax money back into the COFFERS is available online for free.

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