Tax Justice Network Portuguese podcast: Herois invisíveis, o desafio global #33

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business) produced by Grazielle David, Daniela Stefano and Luciano Máximo. All our podcasts are unique productions in five different languages – English, Spanish, Arabic, French, Portuguese. They’re all available here. Here’s the latest episode:

Abusos fiscais ocorrem em todos os países, sejam eles de alta ou baixa renda. Mas as desigualdades em investimentos nas administrações tributárias e na capacitação de auditores fiscais faz a diferença na arrecadação entre Sul e Norte Global.  

O episódio #33 do É da sua conta mostra com exemplos vindos da Guiné Bissau e África do Sul que para diminuir esses abusos é preciso investir na formação e treinamento de auditores fiscais. Afinal, como arrrecadar receitas e contribuir para projetos de nação com justiça social e igualdade se esses profissionais não estiverem bem preparados?

Você ouve no É da sua conta #33:

Mais capacitação, trazer mais consultores para trabalhos conjuntos, dar mais experiências aos nossos técnicos. Tudo isso ajudaria muito nossa administração fiscal evoluir e o próprio estado a obter receitas fiscais em níveis mais aceitáveis para que não dependa tanto da ajuda exterior.”

~ Karim Mané, Contribuições e Impostos da Guiné-Bissau

O fisco da África do Sul era um órgão estatal autonômo, separado do governo. Isso é um profundo reconhecimento de que o serviço de arrecadação de receitas, particularmente quando se trata de países em desenvolvimento, é importante para guiar o país rumo sua soberania fiscal.”

~ Johann van Loggerenberg, ex-auditor fiscal na África do Sul

O comitê [sobre impostos] da ONU precisa ser transformado num comitê mais inclusivo, com o aumento de membros para fortalecer a participação dos países em desenvolvimento. É uma forma de fazer uma contraposição institucional da perspectiva dos países da OCDE.”

~ Marcos Valadão, Tax Initiave do South Centre

Está na hora de os grandes organismos internacionais começarem a atuar e realmente ajudar os países mais pobres a enfrentar abusos fiscais.”

~ Clair Hickman, auditora fiscal aposentada no Brasil

Os efeitos [dos abusos fiscais] são: os ricos ficam mais ricos e os pobres que recebem serviços governamentais reduzidos têm que pagar aqueles impostos que os ricos não pagam.”

~ Nick Shaxson, Tax Justice Network

Participam deste episódio:

Herois invisíveis, o desafio global #33

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É da sua conta é o podcast mensal em português da Tax Justice Network. Coordenação: Naomi Fowler. Produção: Daniela Stefano, Grazielle David e Luciano Máximo. Apresentação: Daniela Stefano e Luciano Máximo. Redes Sociais: Luciano Máximo. Dublagem: Luiz Sobrinho. Download gratuito. Reprodução livre para rádios.

2022, Hopes and Fears: the Tax Justice Network podcast

In this special edition and first Taxcast of 2022, host Naomi Fowler talks with tax justice and anti-corruption campaigners and experts in Europe, Africa, the US and Latin America. What are our hopes and fears for 2022? And what should we be looking out for?

Featuring:

The transcript of the show is available here (some is automated and may have some inaccuracies)

Further information:

2022: Hopes and Fears #119

Taxcast summary:

On the Taxcast’s world tour, the first stop is the UK where economist John Christensen discusses the European Union’s ‘un-shell’ iniciative, which aims to tackle shell company secrecy:

“This is a step in the right direction, particularly the proposed directive makes provision for the authorities of one country to order the company based in another country, which will make it harder for fraudsters in, let’s say Italy, to hide behind a shell company in let’s say Luxembourg. And of course there are caveats. For example, the entire investment management industry is exempted from the current provisions, which strikes me as an unnecessary loophole, likely to benefit rich people. And that will probably require revision in a future directive. And I also think that there needs to be stronger sanctions against companies that are shell companies from applying for any kind of government or state procurement. But overall, Naomi I think this is a welcome move towards consigning shell companies and the tax havens that host them to history.”

John discusses the ongoing fall-out from Brexit and the precarious position of the City of London, which is still hoping to negotiate passporting rights into the EU:

“To be honest in the last year, there seems to have been little or even no progress towards negotiating a new arrangement which will allow the city to sell its services within the European single market based on this notion of equivalence. Equivalence refers to the regulatory practices applied after the UK left the single market and therefore lost the passporting rights that applied within the single market. Now Brussels requires that the regulations of third party countries, which refers to countries who are not member states of the European Union, those regulations of financial markets must be equivalent in practice to the rules for financial services that are built in to the single market rule book. Now, when you talk to European Union officials and politicians, they are rightly concerned that the UK government will quickly deregulate financial services in the UK in order to use race to the bottom tactics to attract more footloose capital to London. British officials and the City of London people, they argue that it’s now over a year since the UK actually left the single market. And there’s no evidence that the UK is preparing a bonfire of regulations. Well, I think we need to take that argument with a very large pinch of salt because there’s no way that they’re going to reveal their deregulatory intentions while still engaged in the negotiations with Brussels over equivalence! The deregulation will come later on! Meanwhile, however, the evidence from the business tracker survey by accounting firm EY show that London financial services firms, out of the 222 financial firms they surveyed, 44% of the companies said that they plan to relocate more work and more staff to financial centres within the European Union. And if you listen to the mood music in Brussels, it seems that attitudes towards the UK have been hardening over the last 12 months. It’s been recognised for many years that London was by far and away the largest European financial centre and European Union politicians are anxious they don’t continue to rely on a financial centre outside the single market. So they’ve been saying to banks and to accounting firms that they won’t accept brass plate operations as a means of accessing the single market, which means that banks are under more pressure to relocate away from London to places like Amsterdam and Frankfurt and Paris. Now at the level of politics and the 2022 presidential elections in France give Macron every incentive to make life even harder for Johnson and for his Brexit negotiator, Liz Truss.

As far as the finance curse issue is concerned, yes, I’ve argued that a smaller financial services sector would be better for the UK economy as a whole. And that argument still applies. But unfortunately, as a result of tax concessions offered by the UK minister of finance in 2021 to attract investment to the UK economy, experts are anticipating a surge of capital inflow during 2022, especially coming from the United States. The UK government will be presenting this as good news, but the vast majority of this capital inflow will be used to acquire existing companies, leading to reduced market competition, probably job cuts and loss of innovation. So from a finance curse point of view this year will bring further bad news for the UK economy.”

John has a few warnings for 2022 which continues to see the UK plagued by its ‘finance curse’, despite so many banks looking to jump ship to the EU, and the wrong kinds of investment comes in:

“Many countries have been trying to stimulate recovery from the COVID pandemic by offering short term tax breaks to business investors. Now this is something of sugar rush, harmful in the long run as the deep pocketed investors, private equity, for example, and large multinational companies use this moment to acquire smaller competitors. So I’m expecting to see many sectors of the global economy become even more concentrated, and therefore less competitive and innovative. Global security will continue to deteriorate, liberal democracy will remain on the ropes,”

Next stop is Latin America where Naomi Fowler speaks with economist and former presidential candidate in Ecuador, Andrés Arauz for his take on the region and the big changes coming up in 2022 in that region. They discuss the progressive new governments in Peru and Chile and the importance for the whole region, in fact for the world, of Chile’s process for a new constitution:

“A constitution basically changes the rules of the game, and it’s going to happen like that in Chile with regards to taxation, with regards to investor state dispute settlement, with regards to sovereignty with some of the trade agreements that are unfair for most of the people with major changes to social progress, such as those in the area of health, education and pensions. So, the constituent assembly now has a president that will accompany it and that’s very important for this political process and for the region in general.”

2022 will also see two potentially transformative elections in Brazil and Colombia. Andrés Arauz identifies one big challenge coming up in 2022 – ‘a forseeable crisis’ for Argentina, because of

“the International Monetary Fund, the private creditors that have put Argentina on the spot in a very difficult position since the Macri administration. But now with the time to collect on behalf of the IMF is putting Argentina in a very, very difficult path to sustain the populations’ human rights, social rights, economic rights. So, we will see a show down between Argentina and the IMF and implications it has for the whole region are huge, and I would dare say for the world as well, so I really hope that the IMF, and US leadership within the IMF, is open minded, it shows some flexibility so that the Argentinian government can have a restructuring of the IMF loan that the prior administration agreed to. And that we can have a policy that is coherent with the need to recover people’s rights in the context of the post pandemic and the paradigm changes that occurred in the midst of the pandemic. So hopefully we will see some transformational change there, and I think we really have to push to get the IMF to agree to give flexibility and a decent restructuring in favour of the Argentinian people.”

Interestingly, there’s a brand new legal analysis where Karina Patricio Ferreira Lima of the University of Leeds School of Law questions the legal validity of the IMF’s Stand-By Arrangement with Argentina. She claims it violates the IMF’s own articles of agreement. You can read more on that here.

Andrés Arauz moves on to discuss El Salvador, which hit the headlines in 2021 when its young President Nayib Bukele adopted bitcoin as its legal tender. They did that through the Chivo wallet, a government-run app:

“We’re gonna see unfortunately El Salvador most likely heading into a full blown debt crisis. And probably will show that the cryptocurrency experiment will not be enough, even though it is innovative in some directions, it also reproduces the same logic that favours transnational capital, that favours foreign investors over the local population, but interestingly has been a contestant to the power of banks in El Salvador, especially foreign owned banks – recall that El Salvador privatised it’s basically entire banking system to foreign banks and they have shown that they have not been able to include financially most of its population so the experiment with the Chivo wallet there is a very, very interesting case that we should not be quick to dismiss and we should study a lot more to understand what really is going on, especially in the interest of the Salvadorian people.”

You can see why Salvadorians would want to liberate themselves from the US dollar. And an estimated 70% of El Salvadorians don’t have a bank account so it’s a very cash-based society. But, take-up of bitcoin’s been slow. We go on to talk more about cryptocurrencies later in the show. Next stop is Colombia and Brazi, both facing big elections in 2022:

“I think the issues in Brazil are going to be very, very interesting. It’s gonna be a very heated election. Unfortunately Bolsonaro is preparing a showdown with international intervention and, you know, foreign interference into the Brazilian election, he’s called onto the most conservative forces in the world to try to avoid a Lula victory, which would bring Brazil back to the path, not only of dignity for its people, but also for major social reforms. And something that’s very important for us, which is Latin American integration. And that means basically a brotherhood of Latin American countries pushing together in one direction – that of integration among the peoples in the education sphere, in the economics sphere, in the productive sphere, the financial sphere. And this will be very, very important for perhaps the next couple of decades. Now we also see that, you know, basically all of the accusations that were against Lula and the progressive workers party there have now been dismissed by the courts. And in fact, what has been shown is that it was basically a lot of lawfare with interference from foreign countries trying to direct judicial officials into incriminating the former president Lula, but now he has been declared innocent on all of the charges that he was accused in the last few years. So this will definitely be an opportunity for vindication and to teach a lesson to those who think that weaponising the justice system is the way to go.

And then in Colombia, in Colombia we’ve seen protests over tax justice issues and in Ecuador we started to see something similar as well. I think that in Colombia there will be a major change, even if the progressive candidate Gustavo Petro does not win, there will be substantial change in Colombia because Colombians have had it, you know. After the peace process, the left and the progressive moments have had more opportunity to show their proposals, present a platform and an agenda without the stigma of being associated to the guerillas or to the revolutionary armed forces of Colombia. So I think there’s a huge opportunity there in Colombia. If there is a change there, it will not be easy because of the way these countries have been ran for almost 200 years with political, economical, elites basically running the show behind the scenes and for any progressive alternative to come about is really, really worth recognising, ‘cause it is too hard, and especially in Colombia where you’ve had, you know, hundreds of people being killed only last year, basically these people are, uh, social leaders, people from the countryside campesino leaders, worker union leaders. So, we really have to become watchdogs of the issue in Colombia.”

And as for Mexico and Central America:

“I think Mexico and Central America are also going to be key actors in the region in Latin America. We’ve seen a progressive Mexican government in terms of tax justice that wants to apply most of the principles that perhaps, you know, are not revolutionary, but are a great path forward in terms of demanding that especially foreign and international corporations comply with local law, including taxation obligations and respecting workers rights. So in general, it’s going to be a packed year for Latin America with lots of hope, lots of hope, but also with a few risks there, especially the oncoming March showdown between Argentina and the IMF.”

The Taxcast travels on to the United States and speaks with Ryan Gurule of the FACT Coalition next and the transformative investment President Biden’s administration is making into the IRS, the US tax authorities.

As Taxcast host Naomi Fowler says, “The United States is one of the only nations in the world so far to start to reverse the decades of cuts we’ve seen to tax collection and enforcement. And I think the US had got down to a third less auditors to do the job than in 2010, and it’s losing billions in tax revenue. If you look at the British experience, we’ve seen resources for tax collection virtually halved in a decade, despite the fact that each tax collector can bring in up to 30 times their salary in terms of tax revenue, and no other tax authority in Europe has cut its staff more than the UK, except for Greece. So the US’s investment commitments sound really amazing, and I know the Build Back Better Act is in a bit of trouble but if they can pass it would include funding to support criminal investigations, cryptocurrency monitoring, and compliance and enforcement personnel.”

Ryan Gurule tells her, “the Build Back Better is a little bit on the fritz right now, so we’re not exactly sure how that picture’s going to shape out. And I think that’s actually the biggest question we have around all of this is kind of what it looks like to help move forward Biden’s agenda as we head into a midterm election year, which is going to be a question. Obviously, the IRS funding is such an essential component to tax justice in general. The current build back better provisions contemplate something around $44 billion in investment over the next 10 years in the IRS for enforcement, but that actually is just one part of the picture. In fact, the bill actually contemplates closer to $80 billion in funding for the IRS over the next 10 years. And that’s broken down into a variety of different areas – around 44 to 45 billion would be for enforcement, but very importantly, close to 2 billion would be for taxpayer services, 27 billion for operation support, closer to 5 billion for business systems modernisation. All these things are essential to getting the IRS running in the 21st century, even though we’re already a quarter of the way into this century, it’s time to really start investing in the IRS and tax authorities all over the globe. As you mentioned, right now we have a system whereby our tax authorities have been depleted. They’re running on technologies and with staff that just cannot keep up with sophisticated tax planning. And you know, the result is essentially here in the US alone, probably a $1 trillion tax gap or more is what the estimates are. When you have dramatic cuts for institutions like tax enforcement authorities, the implications have dramatic class and race problems as well. What you see is that tax authorities sort of abandon going after the most complicated tax planning strategies, because they don’t have their resources to do it. And that overwhelmingly and disproportionately leads to auditing of the low hanging fruit, so to speak. So it’s really important to help fund the IRS to relieve some of the auditing pressure on those groups in particular, and to redirect it towards where there’s a lot bigger return possible for the US government in auditing wealthier taxpayers.”

Ryan Gurule goes on to discuss anonymous shell companies in the United States. The Tax Justice Network’s work on the Financial Secrecy Index shows the US is one of the world’s top corruption enablers and financial secrecy offenders. Famously in the US, you have to give more information to get a library card in some parts of the States than to create a company. The US has finally been getting a lot more of a spotlight on this from journalists, with stories like the ‘cowboy cocktail’ in Wyoming. The US’s Corporate Transparency Act was enacted in January, 2021, but it’s not yet been implemented.

“Broadly speaking,” Ryan Gurule says “the Corporate Transparency Act in the United States is a landmark bill that is the first time that beneficial ownership information will be required for corporations, limited liability companies and quote, similar entities that are created by filing with the State office in the US. They’re going to have to, for the first time, disclose their beneficial ownership in a central registry that’s to be maintained by the Financial Crimes Enforcement Network within the US Department of Treasury in the US. You know, in the US, we don’t have a federal corporate law, so to speak. Our corporations, our entities are all governed at the state level in the United States, so different states unfortunately compete around different ways to attract business and investment and one of those has been really a rush to compete for financial secrecy, which is an unfortunate trend, both in the US itself, but also globally. And I think the Corporate Transparency Act reflects a global movement to help sort of shed a spotlight on financial secrecy and in the US in particular, I think it reflects for the first time kind of some self-reflection that we are helping to contribute to financial secrecy, we are in many ways a tax haven, in many ways the biggest tax haven, and this bill is a step in the right direction to recognise that addressing that status begins with shedding a spotlight on our own governance practices in the US and how that contributes to financial secrecy and tax evasion and corruption worldwide. The Corporate Transparency Act in some ways it’s completely revolutionary in the United States, but in other ways, it doesn’t go all the way as far as some of our international counterparts have gone. The way the law is currently written, the registry itself will not be made public, but it will be available to different law enforcement agencies and tax agencies, based on processes set up within the statute that will then be implemented by regulation as well. So to your question – will this eliminate anonymous shell companies as is claimed? In some ways, yes. Importantly, it’ll address some very broad swathes of entities, but what the scope of that bill is is currently being fleshed out. And that’s exactly what you’re asking as well, so in the US the bill itself was enacted in January, 2021, but it requires regulations to implement it so that process is ongoing right now, the regulation writing process. And quite frankly, we think that businesses and banks and other financial institutions are really wantng to benefit from more transparent markets as well. And that’s been shown by their support of these measures.”

The FACT Coalition hopes the Corporate Transparency Act will go into effect on January 1st of 2023.

In 2021, in Biden’s first year in office, there were a lot of interesting speeches about corporate taxation, the race to the bottom between nations on tax and the real meaning of competition from Secretary to the Treasury, Janet Yellen. We also saw an agreement of a 15% global minimum corporate tax rate. They were initially talking about 21% and 28% minimum global corporate tax rates. Lots of countries weren’t at the table, some of the ones who were, like Nigeria, rejected the deal. Naomi asks Ryan in the Taxcast  if he gets any sense of that rate being raised or any other changes that might happen or pressure that might be brought to bear around that.

“You know, I think I am sort of a jaded optimist, I guess, you know, trying to see the positive in the OECD process. There are a lot of flaws, but I think it’s important, at least I think it’s important to remember that for whatever the OECD agreement lacks, which is a lot, it is an incredibly transformative agreement. It does change over a hundred years of tax international tax policy, and not the least of which by recognising that the current international minimum rate is 0%. It’s not as high as you and I would’ve liked to see, and it’s not as high as a lot of developing countries would’ve liked to see, and there’s problems that have led to that. But 15% is higher than 0%. And I am a big believer in process leads to results. They don’t incorporate the voice of developing nations, and it’s really difficult to imagine that a process that is exclusive could result in inclusive results, right?! So, that is one really valid criticism and I think one that we saw play out in the results of the negotiations themselves. And I think there are certainly ways to reform how the process is done and what we would like to see is real substantive conversations around improving this deal, starting tomorrow.”

Next and final stop for the Taxcast this month was Africa. Taxcast host Naomi Fowler spoke with the Tax Justice Network’s Idriss Linge, who also hosts and produces the Tax Justice Network’s French language podcast for French-speaking Africa – Impôts et Justice Sociale. Although the OECD seems to think that countries can still work with the minimum global tax rate of 15% by topping it up themselves unilaterally to higher rates they already may have in place, that’s not so easy for lower income countries to do:

“It is not that easy for low income countries to benefit from that agreement. We don’t really think this will benefit Africans and moreover, the problem is that the agreement has excluded sectors like the mining sector and the financial sector, which are really, really generating cash in Africa without paying too much taxes. I hope, based on the way the COVID pandemic was handled internationally, African governments will open their eyes and stop providing fiscal gifts to multinational companies, which mostly are based on G20 countries which don’t need that kind of gift so they should be thinking about how they are reforming their fiscal policies, so that the multinational should be paying the fair amount of tax that is needed because 17.5 billion tax lost because of multinational and wealthy individual, it’s a lot for African countries, any penny is a lot for African countries where there is a need for everything.”

And of 2022 he says, “I think climate finance and climate change issue are going to be at the top of the topic that will be discussed for Africans. Africa, especially Sub Saharan Africa needs resources for green energy, because it needs to invest in improving current access and changing infrastructures. It also needs to invest in the 600 million people who still don’t even have access to conventional energy. So African government have no choice but to invest in mitigating the risk for climate change, which will really squeeze the fiscal policies of African economies even more, as well as finding money to repay the debts, including the one that have been used to finance green energy infrastructure, they need to address hunger, diseases and other economic and social consequences of climate change. Saving Africa is also saving the world’s capacity to move towards clean energy because according to scientists the rainforest is capturing every year the equivalent of what is being produced by all the cars in the world, so we need to protect that.”

The Congo Basin is of course home to the world’s second largest rain forest.

Idriss says, “unfortunately the capital markets access for African is tough because of the perception of risk. And even on the domestic side, they can’t raise enough revenue because of profit shifting and consequently tax loss. According to the IMF report 750 million dollars per year were lost in the mining sector. And according to the Tax Network estimates we think that $17.5 billion as a whole were lost as tax. So it’s a major problem. So, tax justice for allocation of resources is an absolutely key struggle. Africa still faces challenges from inflation and social problems like universal healthcare coverage which is lacking, malnutrition and poor education, all of them which are sources of conflict. The problem continues that African governments need to strengthen their tax system, but they are choosing to increase tax on consumption, unfortunately.”

Taxcast host Naomi Fowler goes on to speak with Tax Justice Network’s Rachel Etter-Phoya in Malawi about cryptocurrencies:

“This is something we want to be keeping an eye on this year, and to learn more about ourselves, both the pros and cons, the risks and opportunities, right? So at the moment, according to Chain Analysis, Africa accounts for 2% of the global value of crypto assets or cryptocurrencies, and the most significant channels in terms of value with Africa is between East Asia followed closely by Europe and North America. There are some indications that this may be starting to replace those traditional channels of remittances because its cheaper to move cryptocurrencies and to challenge the cartel of price fixers in these traditional money transfer companies. But it’s hard to tell because of course, cryptocurrencies are opaque in nature. There’s been different approaches to how to how to regulate or how to respond to cryptocurrencies. Some African countries have banned Central Banks from processing any transactions relating to crypto assets, like in Africa’s largest economy in Nigeria, which happened early in 2021. The Nigerian government had various motivations for this. They were concerned with money laundering, cybercrime, and concerned about the preference perhaps that if cryptocurrencies grew over the Naira, the Fiat currency, they’d face challenges in actually being able to control money in the economy, through the monetary policy.”

Rachel describes an interesting example of how cryptocurrency was mobilised by activists when the Nigerian government cracked down on groups involved in the huge demonstrations against the brutal Special Anti-Robbery Squad in the Nigerian police force or SARS.

“With the demonstrations to end SARS, the now disbanded special anti robbery squad, which was a police unit with a long history of brutality, torture and extra judicial killings, the organisations that were involved in leading these demonstrations, some of them had their bank accounts closed, and they ended up turning to crypto assets and cryptocurrencies to raise money, and to receive donations because local payment options weren’t available. What we’ve also seen last year in Africa is, and in Nigeria, their policy to ban cryptocurrencies really hasn’t been effective, so they’ve introduced a digital currency that they call the eNaira. Of course, this isn’t the same as a cryptocurrency – it’s controlled, it’s centralised, it’s linked to the national currency, to the Naira, so it’s not really an investment or financial asset in the way that cryptocurrency would be, but it’s an interesting move.

They have said that the aim is to be more financially inclusive, but if you require someone to have a national ID, or you have to have access to electricity and wifi to be engaged in using the eNaira, I’m not sure to what extent this is really bringing people along, or if it actually could cut people out..when it’s a cash-based economy, but there are some positives, I think there seems to be some positive reception that this may be used for remittances, which is a huge part of some of the financial flows for Nigeria and the Nigerian economy. And if we look further south to South Africa, it’s taken a completely different approach to crypto assets. Last year, they announced that instead of banning, they want to regulate. And so this year we’re looking to South Africa to see how they are planning to formalise a relationship between banks and crypto providers. And they’re also talking about their digital currency, they’re creating their own one. So we are keeping an eye on this across the continent and beyond and what it means for also financial secrecy and transparency.”

The development with e-currencies or digital currencies that central banks are starting to introduce themselves is set to multiply in 2022. And this seems to be part of the wider move away that we’re seeing around the world from cash, which is a risk for lower income groups who often don’t have bank accounts. (An estimated 38 million Nigerians don’t have bank accounts.)

It seems a tempting way for governments to ‘modernise’ and regulate, and presumably tax and protect consumers if it all goes wrong, unlike with cryptocurrencies, as things currently stand – preferable in some ways to just allowing cryptocurrencies to bypass the regulatory system?

Taxcast host Naomi Fowler says: “There are so many questions to ask ourselves, but I think if digital currencies were set up to be accessible and fair and transparent, could they provide benefits for ordinary people versus volatile crypto currencies? Or just are they just going to allow the usual players to dominate and capitalise? By the end of 2021, we saw 14 digital currencies being piloted, 16 in development and 40 are in research phase. With cryptocurrencies institutional adoption to some extent and regulation of cryptocurrencies seems inevitable, but the whole point with crypto was for it to be decentralised and not be monopoly dominated, but that seems to be the logical direction of travel. It definitely needs watching, especially as anonymous shell companies are being cracked down on. Obviously we’re really suspicious of tax havens and secrecy jurisdictions jumping on that, and that’s really unlikely to be about helping poor people!”

John Christensen forsees bumps in the road for cryptocurrencies from another perspective too:

“I think in 2022 we’re going to see increased volatility with almost all cryptocurrencies, and that volatility will be accompanied by more countries cracking down on the huge energy demands of crypto currency mining. And that’s partly because we’re in the middle of a gigantic global energy crisis.”

The UK is breaking up Facebook/Meta and (almost) nobody noticed

We’re sharing the latest edition of The Counterbalance, the newsletter of the Balanced Economy Project, a global antimonopoly initiative. This article was originally published here. You can sign up for their newsletter here.

Frances Haugen, the celebrated Facebook whistleblower, briefly became a bit of a cult hero for exposing the giant platform’s toxic role pushing algorithms that encourage teenage suicides, threaten national security, go easy on drug cartels and drug traffickers, foster riots, or destabilise democracies – then lying about it and continuing to push its intensely profitable and addictive (“like cigarettes“) product.

But her testimony contains a fatal flaw: she wants us to ‘fix’ and regulate Meta, the company formerly known as Facebook.  This is what the company wants, and indeed is actually asking for, because it distracts us all from the only thing that will really make a difference: breaking its power.

Until we do that, the giant will lobby, sidestep and bulldozer its way around (or through) any rules, laws, taxes, regulations and “fixes” that we throw at them.

Lawyers have known this for decades. Jack Blum, a prominent U.S. antitrust lawyer in the 1960s and 1970s, now in his 80s, remembers how companies would prefer to negotiate settlements with regulators, instead of having the law applied to them:

“That became a ‘regulatory’ approach,” Blum told us. “Regulation became the preferred approach of the industry people – because they knew they could push the regulators to do what they wanted.”

There are several ways to break monopolists’ power, including of course with appropriate and effective regulation. But very often, especially with a dominant giant, the simplest and most effective first step is to break it into smaller, less powerful pieces. Since the combined entity is stronger and more powerful than the sum of its parts, breakups can be very good ways to curb power. (For those skittish about breakups, read this.)

And that is exactly what the UK’s Competition and Markets Authority (CMA) is now doing, with a decision on November 30 that Meta must sell Giphy.

Giphy produces those irritating (or, if you’re more open-minded, hilarious) GIFs, or “graphics interchange format” moving images that pop up like distracting mushrooms through our increasingly electronic lives.

Having just acquired Giphy, Meta must now sell it “in its entirety” to an approved buyer. Yes, this is only snapping off a small fragment of the Meta-behemoth, but this counts as a breakup. 

As a reminder of how significant this is, the GAFAM (Google, Amazon, Facebook, Apple, Microsoft) have acquired more than 1,000 firms in the past 20 years, and, as the EU’s former chief competition economist, Tommaso Valletti, told The Counterbalance last year, “zero of those transactions were blocked — and 97 percent were not even assessed by anybody. These are extreme, ridiculous numbers.”

That is a ratio of 1,000 to zero, globally. (In the UK the ratio for 2008-2018 was 400 to zero.) Neither the Americans, the Europeans, the British, nor anyone else, had blocked anything in this space. Ridiculous indeed.

Now Giphy raises this from zero to one. So yes, this is a big deal. Yet outside of technocratic circles and a few specialist journalists, almost nobody noticed!

And the significance of this goes far beyond Big Tech. Look at these two graphs:

Source: European Commission; CMA; author’s calculations. Of 8083 mergers notified to the EC since 1990, just 30, or 0.4 percent were blocked. The UK has blocked 17 out of 1,565, or 1.1 percent, since 2004.

They suggest that our regulators, captive to a bad Chicago-School paradigm, don’t block mergers, let alone break them up. (It was the same in the US for decades, until this year.) The last significant forced breakup anywhere was of the telecoms firms AT&T – forced by US regulators, in 1982-4.

In a nutshell, the whole corrupt EU system essentially reflects the desires of monopolists.

All this may be a surprise to some given all the approving (often fawning) media coverage of EU Competition boss Margrethe Vestager.  Those EU fines on big tech firms have been absorbed with barely a burp.    

A Brussels insider described the Giphy case to us as “a bit of an earthquake,” adding “I was surprised how little buzz it got at [Europe’s competition authorities.] I really have a feeling that the antitrust establishment on both sides of the Atlantic is hoping to weather the neo-Brandeisian storm with as little change to the prevailing Chicago school paradigm as possible.”

In the cloud, floating above the law

A striking aspect of the Facebook case is that the company didn’t even bother waiting for the CMA’s merger review before going ahead with the deal, perhaps hoping simply to bounce the CMA into accepting it by jumping the gun. (In the US, they seem to have used financial chicanery to get around the rules on Giphy – and the EU, for its part, didn’t review it.) Some companies seem to think they are above the law.  Meta is far from alone: the US firm Illumina seems to have been just as arrogant when it announced its acquisition of Grail, even before the EU had completed its review. In Australia recently, the top competition regulator Rod Sims, recently said that companies were sometimes “contemptuous” of the regulator.  

*This paragraph has been updated** Thankfully, the CMA has shown some spine here. (China has taken a more muscular approach too. The United States Federal Trade Commission is also seeking a Meta breakup.)

The green shoots of Giphy

The Giphy case raises big questions.  For one thing, is the UK regulator within its rights, and can it, force a global breakup of a super-powerful US firm? 

Yes: it is, and it can. The CMA already recently blocked a global merger of two US tech firms, Sabre and Farelogix. And with Meta, an altogether more formidable proposition, it has serious backup. Tim Cowen, a well known UK competition lawyer, explained that if the CMA sticks to its guns, it can get the job done:

“Ultimately the CMA applies for a court order. That is issued and non compliance is contempt of court for which jail beckons – and brings the entire foreign judgements and enforcement system into play. That works for court orders internationally and is the basis of the world trade system.”

So, while Brexit has entailed many costs, it has in this case potentially freed the UK to make a decisive break from Europe’s pro-monopoly approach. 

Yet this is no slam-dunk, of course. The company has stunning lobbying power and influence: not least the fact that its key lobbyist, Nick Clegg, is a former deputy Prime Minister of the UK.

A bad-tempered struggle is now underway: Facebook denounced the CMA in September, and the CMA in October fined the newly named Meta £50.5 million for “consciously refusing” to provide information.  Meta has already appealed the CMA decision and as Politico notes, it “will spare no effort or billable hour to try to stop the breakup.”

Will democracy prevail?  We hope so.  When the European Commission blocked the GE-Honeywell merger 20 years ago, they were faced with “the most intense politicking old hands there have seen. . . . .There were journalists, lobbyists and lots of arbitragers from Wall Street calling constantly.” So much so, that as one (especially astute) observer put it:

“That decision set off a concerted campaign by the US to get the EU to adopt a more merger-friendly, ‘economic’ approach to merger review . . . . That campaign worked and its legacy is a track record of hardly any mergers blocked in the last two decades.”

This US government, now showing impressive anti-monopoly chops, surely won’t interfere in UK politics like that. But another might. And the CMA faces another major political headwind: a gaping hole where there should be support.

Civil society: a gap

While the Giphy case has got plenty of attention in narrow technocratic circles, in wider society it’s barely registered.  That’s a stunning gap, given the importance of this case.

*the following paragraph has been updated*
For example, when the CMA publicly requested comments on the case, almost no genuine independent civil society voices submitted comments. (An exception, which is not listed on the relevant CMA page, came from Privacy International, which made an excellent and expert submission.1) The think tanks, which seem to have dominated commentary, that did seem to have unclear funding sources (are they funded by Meta?) and the two academics admitted openly that they have consulted for Facebook. 

And if you delve into the submissions and other lobbying around the case, you’ll see how other-worldly (and often nonsensical) the arguments are. For example:

And so on. To cut a long story short, we’re in the odd situation outside the US where regulators are growing more activist than civil society.  There are civil society actors making arguments here about power, such as Article 19, but they are rare. The civil society dog isn’t barking. This is dangerous, and we’re dedicated to changing this.

How and why to break up the giants

If regulators want to block or unwind mergers, they confront an industry of economists, lawyers, courts, lobbyists, usually a high burden of proof and a pervasive pro-monopoly worldview.  (The arguments get wonkish and complex, though in Giphy’s case, the CMA fortunately side-stepped getting bogged down in econometrics and deployed more sensible “theories of harm” (pp7-9) than some cases have hinged on in the past.)

To start with, let’s tackle some common misconceptions about breakups.

First, some people, mostly on the political left, dislike them (and competition policy more generally) because they think that the primary purpose is to increase market competition, a process that they are suspicious of (for reasons good and bad, which we won’t get into here.) Yet the prime purpose here is is to break Meta’s power, so that it can be regulated – and yes, healthier competition reinstated – in the public interest. 

Second, many people think that if you break a social media platform into pieces, then, well . . . how will I be able to watch that kitten fall hilariously into the yoghurt tub, if we’re now on different parts of a broken-up platform?

One answer is the principle of inter-operabilitywhere regulators force platforms to break open their walled gardens and ensure that if you are on one platform, you’ll be able to watch that kitten in yoghurt from another. (To illustrate, email or phone calls are interoperable: you can call or email anyone using any service.) And if one platform tries to force you to hand over democracy-bending amounts of data, inter-operability lets you migrate to healthier one, without losing sight of the kitten. (The EU’s incoming Digital Services Act is likely to require this, though it often falls woefully short.)

Third, when some people think of breakups they think of Mickey Mouse in the film Fantasia, where a magic broom runs amok so he cuts it up with an axe – only to face a plethora of smaller magic brooms, and a situation even more out of control. 

Effective breakups don’t work like that. Instead, you separate companies as you might cut a diamond: along natural fracture lines (which could be, for example, based on previous acquisitions; or along management reporting lines, etc.)

The acquisition of Giphy had taken a familiar and thus important fragment of the internet and inserted it into a walled garden where it became juiced up with massive market power. Since the combined entity became more powerful than the sum of its parts, a well-judged breakup curbs power overall.  

As the CMA put it, with Giphy:

people are less able to control how their personal data is used and may
effectively be faced with a ‘take it or leave it’ offer when it comes to signing up to a platform’s terms and conditions.”

That’s raw power. According to the CMA, the Meta platforms (Facebook, Instagram etc.) account for nearly three quarters of social media use in the UK, and half of all display advertising revenues (pp9-10). Meta can use this power to force us into a devil’s bargain to sign away our data – potentially with the kinds of consequences that Frances Haugen reminded us of. For example, it and Google have been effectively massacring local journalism at a global scale. If news organisations instead had a wide range of platforms to negotiate with, the scales could tip dramatically, potentially injecting billions into these crucial pillars of our democracy.

People make various other arguments against breakups. Many simply can’t be bothered with the kerfuffle, or they think that it would be like unscrambling eggs, or “inefficient,” or that it “punishes success”, or, perhaps most commonly, “this is about a bunch of free stuff, and we don’t care.” 

Well, it’s not free. The UK estimates that digital advertising costs each household £500 a year through more expensive goods and services, which is like a £14 billion tax effectively monopolised by Facebook and Google. (See this, or this.) And as for punishing success, Facebook is earning an estimated 50% return on capital (p8) largely not for making better stuff, but because it kills or eats its competitors.

A warning from history

Mark Zuckerberg wants to bind us into a private “metaverse” of virtual reality, conspiracy theories, puppies in yoghurt, teenage suicides, comedy skits, viral memes, thrilling immersive space voyages, and political violence back on earth.  He may feel that, as dictator of the Zuckerverse, he is benevolent.  We, and we hope you, disagree.

“The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself,” U.S. President Franklin D. Roosevelt famously  declared in 1938. “That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power.” 

As he spoke, something along those lines was massing in Germany, whose economic structure was intensely monopolised then. Sure, there were plenty of other reasons why Hitler came to power — and the world is entirely different today.  But make no mistake: dispersed and balanced economic ecosystems support political pluralism and balance, and on the flip side, monopolisation will likely entrench any autocrat’s power and give them powerful economic levers to increase political dominance. Just look at what Viktor Orban is doing in Hungary right now, or the symbiotic relationship between monopolising oligarchs and the regime of Belarus’ dictator, Alexander Lukashenko. Look in any country, in fact, where oligarchs have carved up the economy.

The dangers are especially acute when it comes to flows of information — which is what Meta and Big Tech are all about.  That three quarters of UK user time spent on social media probably underestimates the problem, as anyone who has kids with smartphones knows: social media’s dazzling allure violently drags attention away from piano lessons and myriad healthy other things, and glues it into social media.

Source: Pexels

A fully fledged and successful metaverse will make this even worse. We have allowed Mark Zuckerberg, an unelected person apparently drunk with power, effectively to set the rules for how billions of people communicate with each other.

And this is, very obviously, very dangerous. As the US anti-monopolist Matt Stoller put it:

A regulatory overlay in some ways would worsen the problem, because it would explicitly fuse political control with market power over speech and it would legitimize the dominant monopoly position of Facebook.”

The right is suspicious of such a regulator because they are afraid of what Biden and the left would do with it. But I suspect that suspicion isn’t out of place on the left either. If you are a Democrat, imagine, for instance, if Trump were able to pick a regulator for social media, to negotiate with Zuckerberg on how to run global discourse.

Better not to have such concentrated power in the first place.”

Finally: update on a US lawsuit to break up Meta, including Whatsapp and Instagram. This, if it succeeds, could be yet more significant. More on this, another time.

Tax Justice Network Arabic podcast #49: تونس: قانون الإقتراض المُقنّع

Welcome to the 49th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available on most podcast apps. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can follow the programme on Facebook, on Twitter and on our website.

تونس: قانون الإقتراض المُقنّع
في هذا العدد من الجباية ببساطة #49 نستضيف رئيس الجمعية التونسية للحوكمة الجبائية، إسكندر السلامي في حوار مع وليد بن رحومة حول قانون المالية لسنة 2022 المثير للجدل في تونس، ومدى تكريسه لمبدأ  العدالة الاجتماعية من عدمه.في أخبارنا المتفرقة، كانت لنا جولة في المنطقة العربية مع أهم الاحداث التي ميّزت سنة 2021. 

تونس: قانون الإقتراض المُقنّع

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The Tax Justice Network’s French podcast: Les grands moments de la justice fiscale dans le monde en 2021

Welcome to our monthly podcast in French, Impôts et Justice Sociale with Idriss Linge of the Tax Justice Network. All our podcasts are unique productions in five different languages every month in English, Spanish, Arabic, French, Portuguese. They’re all available here and on most podcast apps. Here’s our latest episode:

Pour cette 35ème édition de votre podcast en Français du réseau Tax Justice Network, nous revenons avec vous sur les grands moment qui ont marqué l’actualité de la justice fiscale dans le monde au cours de l’année 2021 Il s’agit notamment

Les grands moments de la justice fiscale dans le monde en 2021

Vous pouvez suivre le Podcast sur:

[Image: “Broadcast Tower” by Steven Beger Photography (Beger.com Productions) is licensed under CC BY-SA 2.0]

January 2022 Spanish language podcast, Justicia ImPositiva: La economía mundial en 2022 y la piratería marítima de los paraísos fiscales

Welcome to our Spanish language podcast and radio programme Justicia ImPositiva with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast favorita.

En este programa:

INVITADOS:

La economía mundial en 2022 y la piratería marítima de los paraísos fiscales

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Imagen: “Container Ship” by NOAA’s National Ocean Service is licensed under CC BY 2.0

Europe has a finance curse problem

A new report reveals the depth of Europe’s finance curse problem.

The Finance Curse concept is a pretty simple idea, which can be summarised with a fried egg, writes Nick Shaxson.

We all need a financial sector, to provide the useful services our economy needs. That’s the yolk of the egg. But there are large parts of the financial sector — the white — that are not only ‘socially useless’, but which actively harm the countries that host them. (And of course the boundary between them is fuzzy and subject to debate.)

This is not remotely controversial. The obvious conclusion, subject to a couple of provisos, is that if countries shrink their financial centres in smart ways, they will be more prosperous. A landmark study from Sheffield University estimates that the total cost of lost growth potential for the UK caused by ‘too much finance’ from 1995 – 2015 is around £4,500 billion, worth roughly 2.5 years of GDP.

Now the German finance experts Finanzwende have produced a short, sharp report on this subject called “Shrink Finance for Prosperity” (German version is here.) Focused on European countries, it is full of information that fleshes out the finance curse thesis, and in new ways. For instance, here is a snapshot showing the dramatic growth of recorded financial assets in Europe since shortly before the global financial crisis, and the equally striking rise of shadow banking relative to other parts of finance.

And much more. One for the Finance Curse archives.

A year the tide turned in the fight for tax justice

As 2021 draws to a close, we wanted to take a moment to reflect upon the tax justice highlights of 2021, and – amidst the continuing pressures of the pandemic – some significant progress.

The year 2021 opened its doors to the inauguration of US President Joe Biden. For good or ill, the tone of US politics exerts a distinct influence on international developments. The rhetorical switch alone was important, from Trump (not paying tax ‘makes me smart’), to the channelling of tax justice from both Biden (I will ‘lead efforts internationally to… go after illicit tax havens’) and new Treasury Secretary Janet Yellen (‘We’ve had a global race to the bottom in corporate taxation and we hope to put an end to that’).

The Biden administration gave important momentum to the stalled OECD tax reforms, but arguably the biggest shifts of the year took place elsewhere. This includes both substantial steps at the United Nations, and an unprecedented degree of international engagement from lower-income countries – including in response to the threats of the OECD process. The inequalities and fiscal challenges of the evolving pandemic have ensured political attention worldwide, further driven by the explosive Pandora Papers which became the biggest ever leak of data from offshore service providers – and included major US operations for the first time.

The Tax Justice Network continued to combine international advocacy and networked campaigning with far-reaching communications and incisive research. Flagship publications in 2021 included the State of Tax Justice and the Corporate Tax Haven Index, while our workstreams contributed in a range of substantive areas. Here are some highlights and achievements from 2021 that stand out.  

The UN FACTI Panel Report

In February 2021, the UN High-Level Panel on International Financial Accountability, Transparency and Integrity (the FACTI panel) published its year-long study into the impact of tax abuse, money laundering and illicit financial flows on the ability of states to meet the UN’s Sustainable Development Goals by 2030. Launched by a group including former heads of state and ministers from around the world, the report built on detailed analysis and engagement with UN member states in every global region. From the perspective of two decades of struggle by the tax justice movement, the recommendations were nothing short of remarkable.

The FACTI report called for powerful, specific policies to be implemented, in respect of both tax transparency and international tax rules. It also envisaged sweeping reforms to the global architecture. In each area, a raft of tax justice proposals were adopted. As our CEO Alex Cobham put it, the report was a “global triumph” for the tax justice movement.

The report called for the adoption of tax justice measures and policies many of our readers will be familiar with: automatic exchange of information, beneficial ownership registration, country by country reporting, unitary taxation and a global minimum tax rate.

But perhaps the most important recommendation the report made was to move rule-making on global tax rules from the OECD, a small club of rich countries, where rule-making has sat for six decades, to a UN setting.

The central element of this proposal was the creation of a UN tax convention, to be negotiated on an inclusive basis and to set rigorous standards for the global exchange of information and for tax cooperation. Second, was the establishment of an intergovernmental body under UN auspices, to oversee the setting of international tax rules. And while these have long been advocated by the tax justice movement, the third is a relatively new proposal: a Centre for Monitoring Tax Rights, first proposed in 2019 our CEO Alex Cobham’s book The Uncounted, to collate, analyse and publish data on the extent of international tax abuse affecting (and facilitated by) each individual country and jurisdiction.

In his blog about the UN FACTI panel’s report, Alex wrote that the report “may come to be seen as a pivotal moment in the world’s fight against illicit finance and tax abuse.”

In April, the UN tax committee demonstrated that despite its low level of resourcing, it was capable of delivering relatively rapid and concrete progress. Specifically, the committee finalised revisions to the UN model tax treaty, to include a new Article 12B which deals specifically with the digital tax issues that the OECD had been struggling with for a number of years.

Then in the new UN General Assembly session, the G77 group – representing the majority of the world’s people and 134 countries – tabled a proposal for an intergovernmental tax body at the UN. While this was blocked for now by a number of OECD countries, the momentum is clear. The intergovernmental South Centre followed by publishing a specific proposal for UN framework convention on tax, which lays out a path forward.

G7 nations agreed a global minimum tax rate on multinationals

In June of this year, the G7 reached an historic agreement to start the end of the ‘race to the bottom’ by implementing a global minimum corporate tax rate on multinational corporations. By October, the top lines of a broader deal were agreed in principle at the OECD ‘Inclusive Framework’. As things stand, in line with the process agreed at the outset in January 2019, the deal introduces a minimum rate (albeit limited to 15 per cent), and also introduces an element of unitary taxation with formulary apportionment (albeit only for a small part of the profits of just 100 or so multinationals).

Caveats aside, this is historic in establishing two important tax justice principles: that a line must be drawn under the race to the bottom, and that multinationals should be taxed according to where they actually do business. But the caveats are huge.

The October 2021 Inclusive Framework statement was signed by 119 countries and some dependent territories, but four countries with a population of around half a billion people rejected it: Nigeria, Kenya, Pakistan and Sri Lanka. They, and (potentially many) others which signed under pressure, view the proposals as likely to cost them revenue and sovereignty – not least because unilateral measures including digital services taxes (DSTs) would be required to be eliminated, and countries would have to accept some binding dispute resolution mechanism.

Another key issue is that the design of the minimum tax gives such a disproportionate share of revenues to richest economies, that it might become impossible to renegotiate in future. At least until the design, signature, ratification and operation of two new multilateral instruments, the proposals allow (OECD) headquarter countries first priority on collecting un(der)paid tax – even when the unpaid tax was originally lost from another, non-OECD country. Moreover, by setting the global minimum rate so low at 15 per cent, at the instigation of Ireland and other tax havens, plenty of room was left to incentivise multinational corporations to keep profit shifting and underpaying taxes. Our analysis showed that settling for anything less than a 25 per cent tax rate keeps the race to the bottom alive and kicking.

The alternative METR (Minimum Effective Tax Rate) research we supported, offered a more balanced and more effective alternative. Under the METR proposal, multinational corporations would be required to pay corporate tax in the countries where they do genuine business activity. That means they pay corporate tax in the countries where they have sales, employ workers and own assets. This approach would see OECD countries collect a more proportional share of recovered tax. Even at the low rate of 15%, lower income countries, where half the world’s population lives, would see the amount of corporate tax they recover almost triple from $7.7bn under the OECD proposal to $22.3bn under the METR proposal. That $22.3bn would be equivalent to a little over a quarter of lower income countries’ combined public health budgets.

Our analysis of the G7 global tax deal was widely covered in media and press. Over 1 in 10 articles read around the world on Monday 7 June 2021 about the G7’s global tax deal announcement quoted the Tax Justice Network. Through this wide global coverage, we were able to raise the alarm about the unfair and ineffective implementation of the global minimum tax deal and help make sure a handful of the richest countries wouldn’t pull the wool over the rest of the world’s eyes. While a number of politicians and media outlets tried to present the deal as the fix to all the world’s tax abuse problems, we made it clear that the fight for a balanced and effective global minimum tax rate is just beginning.

As 2021 closes, the OECD is working on the multilateral instruments which would make the deal binding on individual countries. But countries all around the world are now actively discussing their options. For one thing, they have been provided with no assessment – either public or private – of whether the proposed deal would provide substantial benefits in revenue terms, to offset the known losses of revenue and sovereignty. And as the political engagement and scrutiny grows, it is not clear that governments will retain the appetite to make their informal commitments into binding ones, by signing what is effectively a blank cheque.

So 2022 is likely to be a decisive year for the OECD tax reforms – and perhaps also for the global tax architecture. The G20, under the presidency of Indonesia, may wish to ask the OECD to reopen the process if widespread rejection becomes more likely – and perhaps bring in some element of expertise from the UN system to support the OECD secretariat, as much to signal inclusivity as to add technical capacity.

But options to develop at the UN are now increasingly attractive to countries whose interests have clearly not been included in the OECD deal, and also to some OECD members who will not gain substantial revenues either, nor see the effective action against profit shifting that the process once promised. With the new German government committed to support global inclusion in tax matters, there may be scope for new coalitions that cut across the OECD and could deliver major reform.

The Corporate Tax Haven index 2021

In March we updated our ranking of countries most complicit in helping multinational corporations underpay tax. Ranking at the top of the 2021 edition of the Corporate Tax Haven Index are:

  1. British Virgin Islands (British Overseas Territory)
  2. Cayman Islands (British Overseas Territory)
  3. Bermuda (British Overseas Territory)
  4. Netherlands
  5. Switzerland
  6. Luxembourg
  7. Hong Kong
  8. Jersey (British Crown Dependency)
  9. Singapore
  10. United Arab Emirates

The Corporate Tax Haven Index ranks each country based on how intensely the country’s tax and financial systems allow multinational corporations to shift profit out of the countries where they do business and consequently pay less tax than they should there.

The Corporate Tax Haven Index showed that OECD countries and their dependencies were responsible for over two-thirds of the world’s corporate tax abuse ricks. In other words, those setting global corporate tax rules are the ones most helping multinational corporations get around them.

These findings rightly spurred a big uproar about the role of the OECD in setting global tax rules and the need to move rule-making the UN, as proposed by the UN FACTI panel. As Dr Dereje Alemayehu, executive coordinator of the Global Alliance for Tax Justice, put it at the time, “to trust the OECD in light of the index’s findings today is like trusting a pack of wolves to build a fence around your chicken coop.”

The State of Tax Justice 2021

We launched the second edition of our State of Tax Justice report in November, again publishing jointly with the Global Alliance for Tax Justice and with Public Services International.  The report found that countries are losing a total of $483 billion in tax a year to global tax abuse committed by multinational corporations and wealthy individuals – enough to fully vaccinate the global population against Covid-19 more than three times over.

Confirming the findings of the Corporate Tax Haven Index 2021, the 2021 edition of the State of Tax Justice documented how a small club of rich OECD countries is responsible for the majority of tax losses suffered by the rest of the world, with lower income countries hit the hardest by global tax abuse. The findings coincided with the G77’s proposal for an intergovernmental tax body at the UN, and helped to further galvanise these calls.

Of the $483 billion lost a year, the report found that $312 billion of this tax loss is due to cross-border corporate tax abuse by multinational corporations and $171 billion is due to offshore tax abuse by wealthy individuals. Like last year, the State of Tax Justice also found that global tax abuse continues to hit lower income countries more severely than higher income countries. While higher income countries lose more tax in absolute number, their tax losses represent a smaller share of their revenues (9.7 per cent of their collective public health budgets). Lower income countries in comparison collectively lose the equivalent of nearly half (48 per cent) of their public health budgets. The taxes that lower income countries lose would be enough to vaccinate 60 per cent of their populations, bridging the gap in vaccination rates between lower income and higher income countries.

The State of Tax Justice 2021 was featured in over 300 media articles in 47 countries, in every region of the world.

Country by country reporting

In July 2021, the OECD made available the second round of data from country by country reporting. This is data on the geographic distribution of multinational corporations’ activity, profits and tax, according to an OECD standard which is based on the original proposals put forward by the Tax Justice Network nearly twenty years ago and for which we have since campaigned. However, the data self-reported by multinationals and published by the OECD was aggregated and anonymised before it was made available. So while we can see that multinational corporations are not paying $312 billion worth of tax each year, we can’t see which multinational corporations are not paying the tax.

That’s why we designed the standard for specifically public reporting, and why the leading global setter of sustainability standards, the Global Reporting Initiative, has now introduced a technically robust standard to require the same. This has been the first full year of reporting under the GRI standard, and a growing number of leading companies have voluntarily adopted it.

This year also saw important steps forwards towards mandatory public country by country reporting. The EU parliament passed public country by country reporting measures in the summer, although with some significant defanging. The EU parliament required multinational corporations to publish country by country reporting data on the OECD standard, and only for EU countries (and a handful of small jurisdictions questionably deemed ‘non-cooperative’), instead of all countries they operate in. This does though break the taboo over requiring any publication of this data. The EU showed everyone that even a corporate giant can disclose, and set the path for any other country to require publication.

The US Congress also legislated for public country by country reporting, and went beyond the EU by requiring full disclosure for every country. In 2022, we will see whether the Senate confirms the measures, and/or if it is introduced by direct action of the Securities and Exchange Commission.

Pandora Papers leak

In October, the ICIJ revealed the biggest offshore leak since the Panama Papers in 2016. The Pandora Papers document 14 offshore professional service providers, and the way in which a mass of politicians, public officials and celebrities have utilised the offshore system to hide the true value of their wealth, and in some cases pay less tax than they owe.

We became a go-to resource for the media following the Pandora Papers, and within the first 4 days of the leak being published our commentary was featured in over 600 articles, including many references to the State of Tax Justice and our Financial Secrecy Index.

Tax Justice and Human Rights

Collaboration and connection continued to augment our work in exploring the linkages between human rights and tax justice.  We were pleased to bring to publication the report in which these underpinnings coalesce: Tax Justice and Human Rights: The 4 Rs and the realisation of rights. The report navigates through key issues and explores the pivotal role of tax in the advancement of human rights. Using data modelled by the GRADE project which in turn takes data from our State of Tax Justice Report 2020, it illustrates the powerful impact of tax abuse on the realisation of economic and social rights and on substantive gender equality. The associated launch event brought together a triumph (?) of speakers from Professor. Dorothy Brown taking us on a tour of The Whiteness of Wealth, to Andres Arauz, Ecuadorian Presidential candidate, Professor Philip Alston, Professor Attiya Waris and Professor Steven Dean. Activists and campaigners, including Bilquis Tahira, Jeannie Manipon, and Asha Ramgobin, enriched debate by bringing insights on the intersection of rights, equality and tax justice.

Our support and engagement with United Nations processes continues too. In a collaborative report with several national and regional civil society organisations, we outlined to the CEDAW Committee in March 2021 key tax justice issues which impact on the economic and social rights of women and girls. 

In November, we were especially pleased to prepare a submission for the UN Independent Expert on foreign debt and other international financial obligations and human rights. Professor Attiya Waris’ call for input for the report titled, Taking stock and looking forward – A vision for the work of the mandate, offered an opportunity to encourage an analysis on these issues within the UN system. We also proposed three key interventions undertaken by the mandate: to draw out guiding principles on tax and human rights; to conduct a tax architecture survey – on the lines of the previous debt architecture survey – to canvass member states’ views; and to recognise the importance of the 4th R of tax, representation and to address the question of political inequalities in the tax system. We will enthusiastically support the mandate where and as much as we can.

John Christensen stepped down as Tax Justice Network chair

Our founding director John Christensen retired as an executive director this year, and stepped down from our board which he had chaired. When he had passed on the chief executive role in 2016, his successor and our current chief executive Alex Cobham wrote of John’s successes: “In changing the political weather on these issues, those achievements are nothing short of extraordinary.” We thank John for his powerful contribution to tax justice, and wish him all the best.

The Tax Justice Network reaching people.

Communications and media

The Tax Justice Network continued to bring tax justice issues to more people through our media and online work in 2021. Our research and commentary was featured in over 10,200 media and press articles (more than double that of 2020) in over 140 countries . Over 401,000 sessions occurred on the Tax Justice Network website in 2021 and our social media posts on Twitter, Facebook and Linkedin had a combined reach of over 3,158,000.

Our podcasts (advocating for tax justice in five languages)

The Taxcast (our English language podcast) highlights of 2021: this year has seen wide ranging conversations with leading thinkers and campaigners such as Ben Phillips author of How to Fight Inequality, Tom Bergin, author of Free Lunch Thinking, how economics ruins the economy, Tax Haven Ireland authors Brian O Boyle and Kieran Allen, Lynne Segal and Andreas Chatzidakis of the Care Collective discussing the newest ideas on a caring economy, millionaire and wealth tax campaigner Djaffar Shalchi of Millionaires for Humanity, the son of Maltese murdered anti-corruption journalist Daphne Caruana Galizia on Malta as a captured state suffering from the finance curse, a two part conversation with economic anthropologist Jason Hickel on degrowth and the role of tax in the climate crisis, coinciding with COP26 in Glasgow.

The Taxcast also provided its usual ongoing analysis on subjects including progress on the minimum global corporate tax rate, Pandora Papers, the pandemic, the State of Tax Justice 2021 report, the Corporate Tax Haven Index, the Chinese economy ‘success’ versus the shareholder capitalism model key to the demise of western capitalism, what the Gamestop trading frenzy tells us about what ‘investment’ is (and isn’t), how degrowth must begin with the wealthy, tackling monopoly power, the role of finance sectors and stock exchanges in investing in environmentally destructive activities worldwide.

The Taxcast ends the year with the personal story of victims of tax haven Jersey who tell a shocking tale of impunity there. The Taxcast also put out some ‘Taxcast Extra’ podcasts in 2021 which included Professor Dorothy Brown on the Whiteness of Wealth and analysis on Hong Kong raising its stock transfer tax, just as Wall Street lobbyists managed to dodge the financial transactions taxes bullet.

Impots et Justice Sociale (French podcast) highlights of 2021 include conversations with leading thinkers and campaigners in Francophone Africa including Jean Mballa Mballa of CRADEC and Tax Justice Africa, Bernard Dongmo of PWYP-Cameroon, Professor Ibrahim Assane Mayaki and former President of Niger, Karim Daher, both FACTI panel members, Modeste Kambala of Média les Mérites d’Afrique, Burundian journalist and activist Julien Barinzingo, and Cameroonian extractives expert Michel Bissou, Lucas Millán of the Tax Justice Network, Professor of Economics Kako Nobukpo, Fiacre Kakpo, Editor-in-Chief of the newspaper Togo First, Argentinian Treasury Minister Carlos Protto, Anicet Akoa, President of the Association of Mayors of Cameroon Alamine Ousmane Mey, Minister of the Economy, Cameroon, Martin Tsounkeu, President of the African Development Interchange Network, Franck Essi, Secretary General of the Cameroon Peoples Party and leader of the Stand up for Cameroon movement, Dr Tovony Randriamanalina, expert on transfer pricing and co-author of a report on the participation of poorer countries in the negotiations on international tax agreements, Doctor Aboubakar Nacanabo, Principal Inspector of Taxes in Burkina Faso, Chairman of the ATAF technical committee on cross-border taxation and author of a document on digital taxation in the ECOWAS zone, Mustapha Ndajiwo of the African Centre for Tax and Governance, Professor Emmanuel Nnadozie of the African Capacity Building Foundation, Alex Cobham of the Tax Justice Network, Ms Djanabou Aoudou, Deputy Mayor of the town of Guider, Ebo Jean Roland: African Development and Interchange Network, Audrey Engbemine, Monitoring and evaluation expert, economic analyst, CRADEC and James Jaures Sogbossi, campaigner in Benin, plus people on the street giving their opinions on tax and financial transparency.

Among the subjects covered were extractive industries in Africa, illicit financial flows, moving to the UN as a more democratic global forum for setting tax rules, tax breaks in the Democratic Republic of the Congo depriving the population of much needed revenue, analysis of a report published by the Financial Transparency Coalition and NGOs including Tax Justice Network Africa looking at how significant part of the resources spent by the countries of the South in response to Covid-19 has benefited already wealthy companies more than it has achieved social protection objectives, social and fiscal justice in Burundi, and sharing mining revenues more fairly in Cameroon, the Covid pandemic, the State of Tax Justice report 2021, the Corporate Tax Haven Index, the global minimum corporate tax rate, digital services taxes and Africa’s challenges in collecting that revenue, the lack of ownership registration in Cameroon and other African countries, the weight of international debt in Africa on citizens, the role (or lack of a role) for poorer nations in international global tax rules negotiations, how the Automatic Exchange of Tax Information can help African tax administrations fight against illicit financial flows, and analysis on how African nations can revisit international tax agreements made by the G20 and the European Union.

In Justicia ImPositiva, our Spanish podcast a particular highlight was our reporting on the historic protests and national strike in Colombia over tax justice – the first of its kind in the world – where we interviewed two of the unions central in organising, the Central Unitaria de los Trabajadores, and also the union for small and medium-sized businesses on tax reforms speaking about finding common cause with workers. We also provided analysis on the effects of the pandemic on the global economy and the Latin American region, the new movement for wealth taxes in Latin America, the Chilean constitution and the possibilities and hopes for enshrining tax rights and sweeping away Pinochet’s neoliberal legacy, international financial flows in Latin America related to the pandemic, vaccine inequality and pharmaceutical company practices, proposals in the US for corporate fiscal transparency, Corporate Tax Haven Index results, booming levels of tax abuse in Central America and the challenges of maintaining healthcare rights, the elections in Ecuador and the debate on corruption and tax haven use, the political economy of the new deal. the global minimum corporate tax rate, the new government in Peru, the bitcoin experiment in El Salvador, Brazil’s struggling health service worsened with the pandemic, the international courts that rule on corporate disputes with nation states, HSBC and drug trafficking, the Pandora Papers, the crisis of the Chinese property company Evergrande and questions over shifting global leadership and economic power today.

Interviewees included Oscar Ugarteche, professor at the National Autonomous University of Mexico, UNAM and author of Critical History of the IMF, Daniel Titleman, ECLAC director of economic planning, Matti Kohonen, Christian Aid, Jorge Coronado from the Latin American Network for Economic and Social Justice, Javier García Bernardo, Tax Justice Network, Daniel Roy of the popular blog Global World, Nicholas Luisiani of Oxfam, Mario Guzmán of the Tax Justice Network, Ricardo Martner, economist at the Independent Commission for Corporate Tax Reform, José Antonio Ocampo member of the FACTI and director of the Independent Commission for the Reform of Corporate Taxes, Abelardo Medina from the Central American Institute for Fiscal Studies, Pablo Iturralde from the Centre for Economic and Social Rights of Ecuador, Susana Ruiz of Oxfam, Fabio Arias Giraldo of the Central Unitaria de Trabajadores, Maria Alejandra Osorio from the union of small and medium-sized companies, Carlos Bedoya, Peruvian Political Analyst and Coordinator of the Latin American Network for Economic and Social Justice, María Fernanda Valdes from the Ebert Foundation, Grazielle David, podcast producer and host of É da Sua Conta, Martín Guzman, Minister of Economy, Argentina, Mathew Gbonjubola, Director of Tax Policy for Nigeria, Jayati Ghosh, Commissioner of the Independent Commission for International Corporate Tax Reform and Professor of Economics at the University of Massachusetts, Dereje Alemayehu, Executive Coordinator of the Global Alliance for Tax Justice, Professor Emeritus Sol Picciotto, Senior Advisor at the Tax Justice Network, Luis Moreno of the Latin America and the Caribbean Tax Justice Network, Juan Valerdi professor at the Universidad de la Plata and former advisor to the Central Bank of Argentina, Director of the International Consortium of Investigative Journalists, Gerard Ryle, journalist from  the International Consortium of Investigative Journalists Brenda Medina.

In the Portuguese podcast É Da Sua Conta, we covered the growing movement for wealth taxes, the social and economic consequences of the pandemic, illicit financial flows, the unfairness of the tax system for women and how to fix it with Brazil and Angola as examples, how tax abuse by multinationals reduces the ability of states to guarantee rights and end hunger, the global minimum corporate tax rate and disadvantages for some nations, vaccine apartheid and solutions through knowledge sharing and an end to intellectual property – issues which reflect inequalities on a broader scale. At the time of recording only 1.2% of the Angolan population had been vaccinated, and less than 1% of the inhabitants of Mozambique. We covered how to finance the decentralised production of vaccines for the global population though fiscal justice. We covered the urgent need to reform the tax system so that it is progressive. We also covered structural racism in Brazil’s tax system and look at how the black population is affected by an exclusionary economic and social system, and how that can be fixed, the unfairness of VAT, and the Pandora Papers. There is a regular monthly spot with analysis from Nick Shaxson of the Tax Justice Network. The podcast ended the year with incredible stories of tax collectors, with an episode called Tax Collectors: invisible heroes.

Other interviewees included Global Millionaires for Humanity, Latin American Campaign on Wealth Now, presented by the Latin American Network for Economic and Social Justice, Brazilian Campaigns to Tax the Super-Rich, presented by the Fiscal Justice Institute and Fenafisco, FACTI Panel member Irene Ovonji, Luis Moreno of Latindadd, Shanna Lima of the Tax Justice Network, Aurea Mouzinho, economist, Graciela Rodriguez, Instituto Equit, Liz Nelson of the Tax Justice Network, Tathiane Piscitelli of FGV Direito SP, Jaqueline Oliveira, a hot dog seller, Lucas Millan of the Tax Justice Network, Rodrigo Afonso of Ação da Cidadania, Sandra Inácio, a farmer, Tatiana Lobão, a vegan chef, Valeria Torres Burity, Fian Brasil, Didier Jacobs of Oxfam America, Márcio Verdi of the Centro Interamericano de Administrações Tributárias, Professor Emeritus Sol Picciotto of the University of Lancaster, Yasfir Ibraimo of the Institute of Social and Economic Studies, Bartolomeu Milton of the Associação Pro Bono Angola, Ben Hur Cavelane of CIP Moçambique, Felipe Carvalho from Médico Sem Fronteiras Brasil, Luciana Pioto, journalist and actress, Luiz Vieira of the Bretton Woods Project, Peter Maybarduk from Public Citizen, Wilson Farina, DJ, Débora Freire of UFMG, Matti Kohonen of the Financial Transparency Coalition, Paulo Gil Introini of the Instituto de Justiça Fiscal, Rodrigo Orair of Ipea, Clara Marinho, Roseli Faria, Flávio Batista of Faculdade Sensu, Keval Bharadia, political economist, Waleska Miguel, a political economist, Fernando Gaiger of the Instituto de Pesquisa em Economia Aplicada, José Gusmão, MEP, Maria Fernanda Valdez, economist and coordinator of FES Colombia, Andres Arauz, economist and former presidential candidate in Ecuador, Clair Hickman of the Instituto de Justiça Fiscal, Ethel Rudnitzki, a Public Agency reporter, Maria Lucia, small businesswoman, Uallace Moreira, professor of economics at the Federal University of Bahia, Hernan Arbizu, economist and former banker and Florencia Lorenzo of the Tax Justice Network.

The Arabic podcast Taxes Simply الجباية ببساطة covered current affairs on an ongoing basis related to tax and financial transparency, the economic effects of Covid-19 in the Middle East and North Africa, the most important measures for the recovery of the Arab region, a new tax law coming into force in Egypt which threatens the livelihood of approximately 3 million small taxpayers and their families, Brexit, the catastrophic fall in the currencies of Sudan, Syria and Turkey, the drop in oil prices due to weak demand, the economic situation in Jordan in light of the pandemic and its social repercussions with teachers returning to street protests, tax justice and the sustainable development goals, the Sudanese economic crisis, FACTI recommendations on combating financial flows Illegal tax evasion and money laundering, the UAE and its ranking in the Corporate Tax Haven ranking as among the ten worst offenders for facilitating corporate tax abuse, the countries obstructing vaccine production capabilities in poorer countries (including Britain), Cyprus reduced taxes on ships using clean fuels, the abolition by the Egyptian Parliament of exemptions to taxing MPs’ bonuses, amendments to capital gains and dividend tax in Egypt and their impact on the Egyptian Stock Exchange, digital taxes and how to make them fairer, the battle to implement a minimum wage in Egypt and its social and economic advantages, turbulent political situations in Libya, Lebanon and Tunisia, we covered a Tunisian Forum for Economic and Social Rights report on the policies of the Tunisian government regarding the Covid-19 pandemic, the worsening situation of vulnerable groups and internal authorities in light of weak infrastructure and the high cost of medical treatment as a result of the decline in government spending on healthcare, the collapse of Lebanon’s currency, as well as medical and electricity sectors, and social and economic consequences, spending cuts in Kuwait, the forced return of Yemenis from Saudi Arabia, Egypt’s issuance of the first sovereign sukuk, the complexities of the Algerian banking system which is limiting remittances from expatriates abroad, controversy over proposals in Egypt to start taxing the incomes of influencers and social media content creators on YouTube, Facebook, Instagram and TikTok, and the crisis in Sudan with record inflation rates, unemployment figures and the collapse of the value of the local currency.

Interviews include our regular commentator, tax justice and human rights specialist Norhan Sharif, accountant Mohamed Mustafa, lawyer Mustafa Al Far, Ahmed Awad of the Phoenix Centre for Economic Studies in Amman, Karim Daher, member of the United Nations High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving Agenda 2030, political economist Karim Megahed, researcher Sirin Ghannouchi, Lebanese political activist, Samer Abdullah, economic and social rights researcher Elhamy Marghani, political economist Omar Samir. 

Launch of our 101 explainer video series

We produced a series of ‘Tax Justice 101’ explainer videos. These were designed to explain key issues and policy asks of the tax justice movement in a way that was accessible, upbeat and fun. Principally targeting younger people and activists who may be new to tax justice issues, topics covered included the ‘ABC-G of tax justice’, ‘the 4 Rs of tax justice’, ‘tax justice and the care economy’ and ‘tax justice and human rights’ among others. The series was disseminated across our social media channels and through the Tax Justice Network’s regular newsletter in the final quarter of 2021, achieving broad reach and very positive feedback. We hope that the video series will enjoy a long shelf life and will serve as an important resource for both didactic purposes and introducing new audiences to these issues as we seek to build stronger links with adjacent movements such as climate justice campaigners.

The year ahead

This year saw a number of leaps forwards for tax justice, but there is much work to be done ahead. While the pandemic brought tax to the forefront of national and international debates about the link between tax and public health services, 2022 may be the year that the link between tax and human rights gains wide recognition. The UN Committee on the Rights of the Child will conclude its review of Ireland’s tax policy in 2022 to determine whether Ireland’s enabling of global tax abuse violates the Convention on the Rights of the Child. Will the review further spur the momentum we saw this year for a bigger role at the UN on global tax rules? Will it put countries’ tax sovereignty into new light? We’re looking forward to finding out.

Tax Justice Network research again draws flak from tax havens and critics

Last month, we launched the 2021 edition of the State of Tax Justice with our co-publishers PSI and the Global Alliance for Tax Justice. The latest edition of the annual report found that countries are losing over $483 billion in tax a year to global tax abuse, which is enough to fully vaccinate the global population against Covid-19 more than three times over. The report received wide international and national coverage, spanning national papers, online and broadcast.

It has not been uncommon for our larger research pieces to draw strong reactions, ranging from genuinely constructive debate to coordinated misinformation campaigns. We’ve made it a regular practice for several years now to gather and respond openly to such criticisms in the first few weeks after the launch of major research pieces. 

We always welcome feedback on our research, and acknowledge the potential for improvements of our methodologies. The criticisms of the State of Tax Justice that we summarise here, however, do not go so far and in many cases reveal simply a poor understanding of the work. We provide detailed responses below. 

Cayman Finance report on the State of Tax Justice 

The most prominent criticism has come from Cayman Finance, the association of the financial services industry of the Cayman Islands. Cayman Finance published a report criticising the State of Tax Justice, stating:

“TJN’s use of extremely distorted estimates and its failure to acknowledge the Cayman Islands’ tax neutrality and significant safeguards against tax evasion and aggressive tax avoidance have resulted in a report that is highly unreliable in its conclusions about the Cayman Islands financial services industry.” 

This is not the first time Cayman Finance has published reports and briefings attempting to discredit the Tax Justice Network’s research. We have responded to these in the past, showing how the criticisms do not hold water and at times are based on erroneous understandings of complex tax matters. 

The latest Cayman Finance report, however, takes a more problematic approach than previous reports. It attempts to shield the Cayman Islands from criticism of its role as one of the world’s worst enablers of global tax abuse by using a two-pronged approach: (1) denying that harmful tax abuse activity is harmful or constitutes tax abuse; and (2) creating doubt over the credibility of data made possible in recent years through progress on tax transparency.

The report argues:  

“By lowering MNEs’ effective tax rates, profit shifting enables MNEs to invest more in innovation and/or to reduce the cost of goods and services provided to consumers. To the extent that prices of goods and services supplied by these MNEs fall, consumers have more to spend on other goods and services — which is good news for other businesses.” 

The harm of profit shifting has been evidenced by decades of research from several intergovernmental bodies, organisations and academic institutions, including the IMF, the World Economic Forum, the OECD and the UN. Cayman Finance’s report attempts to deny this reality in order to deny the harm the Cayman Islands enables.  

Cayman is singlehandedly responsible for an estimated US$83 billion of revenue losses worldwide, or 17% of the global total uncovered in the State of Tax Justice. Lower-income countries lose the largest share of current tax revenues to tax abuse, and these losses more than any others translate directly into lost public services, worse outcomes including child and maternal mortality, and the denial of human rights more broadly.

Cayman’s tax abuse is ‘good news’ for almost precisely no one among the world’s more than seven billion people. Even Caymanians benefit little, because of the finance curse phenomenon. As in jurisdictions like the British Virgin Islands, with its government now suspended due to claims of corruption and wider criminality, a disproportionately large financial sector tends to be associated with higher inequality and weaker governance.

When not making false claims about the “benefits” of profit shifting, the report alternates between accusing the State of Tax Justice of exaggerating the level of profit shifting facilitated by the Cayman Islands, and denying the presence of any profit shifting at all in the Cayman Islands. Since the Cayman Islands doesn’t collect tax to begin with, the report argues, the Cayman Islands cannot facilitate tax abuse:

“More credible analyses find that Cayman is not a major jurisdiction to which corporate profits are shifted. Indeed, in contrast to jurisdictions that have tax treaties with high-tax jurisdictions, Cayman simply cannot directly facilitate profit shifting. This is because Cayman is a pure tax neutral jurisdiction, which means it has no direct taxes on corporate or personal income and has no double tax agreements that allocate taxing rights.” 

The use of the hollow term “tax neutral jurisdiction” is a transparent attempt to obfuscate and mislead. Not having direct taxes on corporate profits is exactly how the Cayman Islands incentivises multinational corporations to shift profit into the jurisdiction. To claim that not having direct taxes means Cayman Islands cannot facilitate profit shifting is, at best, indicative of a fundamental failure to understand how cross-border corporate tax abuse works, and, at worst, indicative of a deliberate attempt to mislead readers. This is like arguing that a person cannot spread COVID-19 simply because they are themselves asymptomatic.

Beyond the attempts to deny and obfuscate, Cayman Finance’s report heavily relies on another report criticising the State of Tax Justice 2020 that was published by Richard Murphy in July 2021. The criticisms in Murphy’s report are based on inaccurate accounts of the State of Tax Justice’s methodology and a significant misunderstanding of how the methodology works. The criticisms made in Murphy’s report, reproduced in Cayman Finance’s report, are addressed further below.

Following blacklisting scare, Cayman Finance hires Koch-linked climate sceptic to deny tax abuse 

It is not a coincidence that the tactics used in the Cayman Finance report – denying the link between an activity and the harm it causes, and creating doubt over established evidence by cherry picking data and using obfuscating language – bare a strong resemblance to the tactics used to deny climate science and tobacco harm.

In December 2020, EU MEPs adopted a resolution to update the “confusing and ineffective” way in which the EU draws up its tax haven blacklist in order to better target the most harmful tax havens. The resolution specifically named the Cayman Islands as an example of a tax haven that should be on the list but isn’t. The resolution was a direct response to the State of Tax Justice 2020 published at the end of November 2020 and quoted analysis from the report. The State of Tax Justice 2020 had found that the Cayman Islands was the world’s worst enabler of global tax abuse and responsible for countries losing over $70 billion in tax a year. The effort to update the blacklist eventually failed, however, due in part to lobbying by the Cayman Islands.

When Cayman Finance CEO Jude Scott was questioned by Cayman News Service (CNS) specifically about the role of the State of Tax Justice report in prompting the EU parliament to act, Scott made clear Cayman Finance’s intentions to hire an “external expert” to discredit the report. CNS reported: 

“In correspondence seen by CNS, Cayman Finance identified the problem of the EU’s reliance on research by the Tax Justice Network. CEO Jude Scott told board members that the “tremendous reliance by EU decision makers on reports by TJN”, which had fundamental statistical flaws, needed to be addressed. 

“He said Cayman Finance was seeking support from the government’s statistical team or for public cash to be used to fund external experts to do a full analysis of the 2020 TJN reports to give Cayman “a credible basis for challenging, and, if appropriate, publicly discrediting, the TJN ratings of the Cayman Islands”. 

“But he added, ‘To date, we have not received this support.’ As a result he is now seeking support from the Cayman Finance board to fund the external experts themselves, as he highlighted the urgency of the situation.” 

Cayman Finance’s call was eventually answered it seems, allowing them to work with Julian Morris, a senior fellow at the Reason Foundation, a libertarian think tank. The Reason Foundation is funded by Koch foundations and had as a trustee for 36 years the late US billionaire David Koch. Since the early 1990s, the Reason Foundation has repeatedly been criticised for taking money from fossil fuel companies and tobacco firms while publishing writings that align with those companies’ interests.

The Reason Foundation was one of 32 organisations with links to fossil fuel interests called out by US senators in July 2016 for their role in “perpetrating a sprawling web of misdirection and disinformation to block action on climate change.” The Reason Foundation was reported to have received a total of $381,000 from ExxonMobil since 1998 (see Greenpeace’s ExxonSecrets factsheet for more info). In a 2018 policy brief, Julian Morris wrote, “The effects of climate change are unknown—but the benefits may well be greater than the costs for the foreseeable future.” The tactic of denying established evidence on the harm of climate change, and to go so far as to claim that climate change is overall beneficial, is no different from Morris’s attempt to deny the harm of profit shifting in his report for Cayman Finance and claim profit shifting is beneficial, despite decades of evidence showing otherwise.

The Reason Foundation is also listed as an “ally” of the tobacco industry on the University of Bath’s Tobacco Tactics resource. The Reason Foundation, which has argued against raising tobacco taxes and against raising the age to buy cigarettes, received donations from Altria, one of the world’s largest producers and marketers of tobacco, cigarettes and related products, from 2011 to 2016. A Philip Morris USA 1993 contribution report disclosed contributing $10,000 to the Reason Foundation in 1993, and $40,000 in the previous year as “General Support”. Philip Morris USA also reported contributions of $20,000 in 2000, with a similar sum proposed for the following year. In a 2016 policy brief, Julian Morris wrote, “The WHO’s opposition to tobacco harm reduction is dishonest and threatens public health.”

The Reason Foundation is a member of the State Policy Network, a network of conservative and libertarian think tanks focusing on state-level policy in the United States. The State Policy Network was exposed by a Guardian investigation in 2013 to be planning a “US-wide assault on education, health and tax”. The Reason Foundation was listed as a member of the Atlas Network as recently as 2020. The Atlas Network, also funded by Koch foundations is a US organisation which acts as an umbrella for libertarian and “free-market” ideology groups around the world, such as the IEA in the UK. The Atlas Network has recently taken down its global directory of partners from its website. 

Cayman Finance’s false accusations of foul play over Financial Secrecy Index 

Cayman Finance previously had Julian Morris author another report that similarly attempted to discredit another piece of research by the Tax Justice Network, the Financial Secrecy Index. The Financial Secrecy Index ranks countries based on their complicity in helping individuals hide their finances from the rule of law. The Cayman Islands ranked at the top of 2020 edition of the index, overtaking Switzerland and the US for the first time. The Cayman Finance’s report was published in the summer of 2021.

Cayman Finance makes three primary claims against the Financial Secrecy Index. 

First, it accuses the Tax Justice Network of ignoring its own methodology by choosing to use an alternative data source to measure the volume of offshore activity hosted by Cayman Islands. Had the appropriate data source been used (i.e. IMF balance of payments statistics), which Cayman Finance claims was publicly available on the IMF website before the index’s cut-off date for sourcing data, the Cayman Islands would have ranked much lower:

“Used inaccurate methodology – the FSI report failed to follow its own methodology when calculating a Global Scale Weight (GSW) – the primary factor for determining a jurisdiction’s score — for Cayman. TJN chose to use portfolio liabilities instead of publicly-available data for financial services exports. As a result, TJN’s estimate of GSW for Cayman was nearly 9 times what it should have been. If TJN had accurately applied their own methodology on just this point, Cayman would already drop down to 6th on the FSI.” 

As documented in detail below, the IMF’s Balance of Payments Statistics database held no data on the Cayman Islands on 30 September 2019 (which is the cut-off date for the index according to our methodology [see p.14]). On some occasions, additional data is collected after the index’s cut-off date where exercising leniency on the cut-off date can provide a more up-to-date picture. For the 2020 edition of the Financial Secrecy Index, a final collection of balance of payments statistics was made from the IMF database on 1 November 2019 to capture more up-to-date reporting. Nonetheless, the IMF’s Balance of Statistics database still held no data on the Cayman Islands on this date and so an alternative data source was used, as set out in the index’s methodology.

The Tax Justice Network twice contacted the Cayman Island’s Ministry of Financial Services and Home Affairs and the Cayman Island’s Office of the Auditor General (in March 2019 and December 2019) inviting them to comment on the index’s assessment of the jurisdiction ahead of the launch of the index. While the the Ministry did kindly comment on some of the index’s findings in its response in December 2019, the Ministry did not dispute our conclusion that the Cayman Island’s balance of payments statistics were not publicly available. Moreover, the Ministry shared links to CPIS data on the IMF database but did not share any links to BOPS data on the IMF database. In line with our methodology, CPIS data was used in place of the unavailable BOPS data. We did not receive a reply from the Office of the Auditor General.

Second, Cayman Finance argues that an audit of the Financial Secrecy Index by the European Commission’s Joint Research Centre found the index’s methodology to be questionable and that had the index used an alternative method suggested by the Joint Research Centre, Cayman Islands would have ranked much lower: 

“The European Commission Joint Research Centre found this methodology to be very peculiar and results in an index that may not measure what it is supposed to measure.” 

“TJN’s methodology for combining the GSW and SS is arbitrary and does not have a sound statistical rationale. Using a more statistically sound and intuitive method, suggested by the European Commission Joint Research Centre, Cayman falls to 16th on the Index.” 

This is a straightforward misrepresentation of the European Commission’s Joint Research Centre’s audit, which we commissioned ourselves. The Joint Research Centre’s audit concludes: 

“Overall, the FSI 2018 offers an extremely detailed analysis of the concept of financial secrecy based on a wealth of original research. While the aggregation (or not) of the secrecy score and global scale weight still calls for further discussion and investigation, no objectively “right” solution exists, and the methodology of any composite indicator, as necessarily subjective instruments, is always open for debate.” 

The audit experimented with three alternative aggregation methods but ultimately concluded that the index should stick to its original method:

“No particular transformation is recommended here…To conclude, there are two reasons to continue with the present methodology for combining the global scale weight with the secrecy score. The first is that the cube/cube-root aggregation, in some sense, is a compromise between statistical balance (in terms of correlation) and distorting the distribution of the GSW. The second reason is simply to minimise disruption.” (see page 186)

Moreover, the Joint Research Centre made clear in its audit that the alternative method, which Cayman Finance utilises and claims was suggested by the Joint Research Centre, “comes at the price of a very heavy imbalance”. Under this alternative method, the Joint Research Centre states, “The GSW and SS are very unbalanced: the SS ranks have effectively no relation to the FSI ranks.”

In other words, under the alternative method preferred by Cayman Finance, a jurisdiction’s laws and regulations effectively have no impact on its ranking. Instead, the jurisdiction is ranked solely on the volume of financial activity it conducts from non-residents. It is unsurprising that Cayman Finance would prefer an alternative methodology that does not factor in its regulatory regime. It is also untrue to suggest that the Joint Research Centre support it.

The fact that the small jurisdiction of Cayman Islands would still rank 13th under this alternative method (or 16th with Cayman Finance’s additional alternations to the methodology) only confirms the oversized volume of wealth being sent offshore to the Cayman Islands. The jurisdiction, with a population of less than 66,000 in 2020, would rank above some of the world’s largest economies, including G20 members Argentina, Australia, Brazil, China, Japan, India, Indonesia, Italy, Mexico, Russia, South Africa, Saudi Arabia, South Korea and Turkey. Cayman Finance is admitting here the oversized role it plays in helping individuals move their finances offshore.

Third, Cayman Finance accuses the Financial Secrecy Index of “discrimination” and “bias” for holding the jurisdiction (and all jurisdictions) to a more rigorous, evidence-based standard of financial transparency. This is a criticism we often hear made against our indexes. The Financial Secrecy Index’s indicators go beyond watered-down, politically negotiated standards on transparency (such as the OECD’s standard or the EU’s tax haven blacklist) in order to capture the limitations and loopholes that enable exploitative workarounds.

The Financial Secrecy Index was constructed precisely in order to provide a level playing field for the assessment of major economies and small financial centres alike, so that the latter would not be unfairly singled out as they frequently have been in opaquely constructed ‘blacklists’ published by the OECD, IMF or EU, for example. But Cayman is a very serious threat, when reviewed on objectively verifiable criteria. Ironically, Cayman Finance accuses the Financial Secrecy Index of being “biased” precisely because the index is not influenced by the type of political pressure or lobbying that they have themselves sought to exert elsewhere.

A more detailed response to Cayman Finance’s report is available below. 

Cayman Finance criticism 
Response
TJN’s calculation of a jurisdiction’s GSW depends on a measure of exports of financial services. TJN’s preferred data for that metric is the IMF Balance of Payments Statistics (BOPS) if it was available by 1 November 2019. Cayman’s IMF BOPS data was available at that time but TJN did not use it. Instead, it used a measure that inaccurately represents the scale of Cayman’s financial services exports.

– TJN says Cayman’s BOPS data on exports of financial services for 2018 & 2017 was “unknown.”

– The Cayman Islands Government Economics and Statistics Office (ESO) had published provisional data on exports of services (including financial services) as part of its Balance of Payments & International Investment Position Report 2017 in February 2019. ESO submitted 2017 report data, including data on exports of financial services, to the IMF in September 2019 and the IMF made the information available on its website the same month.

– Cayman’s BOPS data on exports of financial services was available to TJN well before its deadline and yet TJN choose to substitute estimates that massively exaggerated the scale of Cayman’s financial services exports.

– By using an inaccurate measure of Cayman’s export of financial services, TJN overestimated Cayman’s GSW by 860%, which in turn led to Cayman’s score on the Index more than doubling.

– Had TJN used the available BOPS data, its estimate would have been approximately $2.5 billion, an order of magnitude less than the figure used by TJN in the FSI, and Cayman’s GSW would have fallen from 4.5% to 0.5%, which would have dropped Cayman to 6th in the ranking.		The Financial Secrecy Index 2020 used data from the IMF’s Balance of Payments Statistics database as of 1 November 2019. The Cayman Island’s balance of payments statistics were not available on the IMF database by this date.

The cut-off date for data collection for the index was 30 September 2019 (see p.14 of the Financial Secrecy Index methodology document). On some occasions, additional data is collected after the index’s cut-off date where exercising leniency on the cut-off date can provide a more up-to-date picture. For the 2020 edition of the Financial Secrecy Index, a final collection of balance of payments statistics was made from the IMF database on 1 November 2019 to capture more up-to-date reporting. Nonetheless, the IMF’s Balance of Statistics database still held no data on the Cayman Islands on this date and so an alternative data source was used, as set out in the index’s methodology.

Cayman Finance contests the statistics were published on the IMF website in September 2019. However, the IMF’s archive shows that no balance of payment statistics on the Cayman Islands were held in the database in September 2019 nor October 2019. Statistics for the Cayman Islands first appeared in November 2019, indicating that the statistics were uploaded at some point in November after 1 November 2019.

Importantly, all jurisdictions ranked by the Financial Secrecy Index, including the Cayman Islands, were given two opportunities to provide us with up-to-date information on all elements evaluated by the index. Each jurisdiction’s Ministry of Finance and National Audit Offices were sent questionnaires in March 2019 featuring our detailed preliminary assessment of their jurisdiction’s ranking on the index. They were also sent our concluding assessment in December 2019 ahead of the launch of the index. All jurisdictions were asked to inform us of any incorrect or out-of-date data or conclusions in our assessment so that updates can be made were applicable and evidenced.

The Tax Justice Network twice contacted the Cayman Island’s Ministry of Financial Services and Home Affairs and the Cayman Island’s Office of the Auditor General in March 2019 and December 2019. While the the Ministry did kindly comment on some of the index’s findings in its response in December 2019, the Ministry did not dispute our conclusion that the Cayman Island’s balance of payments statistics were not publicly available. Moreover, the Ministry shared links to CPIS data on the IMF database but did not share any links to BOPS data on the IMF database. In line with our methodology, CPIS data was used in place of the unavailable BOPS data.

We did not receive a reply from the Office of the Auditor General.

The Cayman Islands had the opportunity to clarify to the Tax Justice Network that the Balance of Payments statistics had been made available on the IMF website after our assessment of the jurisdiction was concluded, which we would have considered using for the jurisdiction’s ranking.
“TJN calculates the FSI score for each jurisdiction by multiplying the cube of the Secrecy Score by the cube root of the Global Scale Weight. The European Commission Joint Research Centre found this methodology to be very peculiar and results in an index that may not measure what it is supposed to measure…TJN’s methodology for combining the GSW and SS is arbitrary and does not have a sound statistical rationale. Using a more statistically sound and intuitive method, suggested by the European Commission Joint Research Centre, Cayman falls to 16th on the Index.”The Tax Justice Network commissioned the European Commission’s Joint Research Centre to audit our own Financial Secrecy Index in 2016 as part of our efforts to regularly evaluate and improve our research. Cayman Finance attempts to depict the Joint Research Centre’s audit as critical of the index’s methodology and evidence of the index’s “unreliable results”. This, however, was not the conclusion of the audit, which was reproduced in full in the Financial Secrecy Index’s 2018 methodology (see pages 163-197).

The Joint Research Centre’s audit concludes:
“Overall, the FSI 2018 offers an extremely detailed analysis of the concept of financial secrecy based on a wealth of original research. While the aggregation (or not) of the secrecy score and global scale weight still calls for further discussion and investigation, no objectively “right” solution exists, and the methodology of any composite indicator, as necessarily subjective instruments, is always open for debate. Nevertheless, a number of recommendations are offered herein as food for thought order to help the Tax Justice Network to bring the FSI reach its full potential as a monitoring and benchmarking tool that can guide policy formulation.”

The Joint Research Centre experimented with three alternative approaches to combining Global Scale Weight (GSW) and Secrecy Scores (SS). Ultimately, on whether the index should stick to its original approach or switch to one of the alternative approaches tested in the audit, the Joint Research Centre concluded:
“No particular transformation is recommended here…To conclude, there are two reasons to continue with the present methodology for combining the global scale weight with the secrecy score. The first is that the cube/cube-root aggregation, in some sense, is a compromise between statistical balance (in terms of correlation) and distorting the distribution of the GSW. The second reason is simply to minimise disruption. On the other hand, if one were to pursue the goal of interpreting the FSI as a summable quantity of two measurable variables, FSI-Alt1 seems the best option (because no nonlinear transformations are used), but comes at the price of a very heavy imbalance. If one were purely interested in balancing the correlations of the GSW and SS, FSI-Alt2 and Alt3 are both alternatives with better statistical properties, and are arguably simpler than the original FSI in that only one variable is transformed. FSI-Alt3 has the best statistical balance and also implies less upheaval than FSI-Alt2. Of course, all of the statistical considerations presented here have to be balanced against the conceptual considerations, and this is a matter left to the developers.” (see page 186)

Contrary to Cayman Finance’s statement, the Joint Research Centre did not suggest replacing the index’s original approach to combining GSW and SS with the Alt1 approach tested in the audit and used in Cayman Finance’s report to arrive at a lower ranking for the Cayman Islands. The Joint Research Centre found the Alt1 approach to have an important disadvantage: “The GSW and SS are very unbalanced: the SS ranks have effectively no relation to the FSI ranks.”

In other words, under the Alt1 approach preferred by Cayman Finance, a jurisdiction’s laws and regulations effectively have no impact on its ranking. Instead, the jurisdiction is ranked solely on the volume of financial activity it conducts from non-residents. It is unsurprising that Cayman Finance would prefer an alternative methodology that does not factor in its regulatory regime.

Critically, the fact that the small jurisdiction of Cayman Islands would still rank 13th (or 16th with Morris’ additional alternations) under this alternative ranking only confirms the oversized volume of wealth being sent offshore to the Cayman Islands. The jurisdiction, with a population of less than 66,000 in 2020, would rank above some of the world’s largest economies, including G20 members Argentina, Australia, Brazil, China, Japan, India, Indonesia, Italy, Mexico, Russia, South Africa, Saudi Arabia, South Korea and Turkey. Cayman Finance is only admitting the oversized role it plays in helping individuals move their finances offshore.
The FSI’s “Secrecy Score” is based on twenty “Key Financial Secrecy Indicators” (KFSI), which are marred by numerous biases that considerably weaken the report’s stated goal of identifying jurisdictions that facilitate “illicit financial flows” and skew jurisdiction rankings.
 
– Nine KFSIs do not provide reliable or consistent information on a jurisdiction’s tendency to facilitate illicit financial flows. For example:
KFSIs 5 and 6 discriminate against jurisdictions like Cayman that have verified beneficial ownership registration systems that make information available upon request to authorities in other jurisdictions.
KFSI-12 scores whether a jurisdiction has a consistent personal income tax, which seems based on the assumption that high- and progressive-income taxes equate to lower levels of tax avoidance and evasion – yet evidence suggests that the opposite is the case.

– The criteria for two other KFSIs (11 and 14) are biased against jurisdictions that don’t impose individual or corporate taxes, even though that has no connection to illicit financial flows.
KFSI-11 scores a jurisdiction’s administrative capacity to tax individuals and corporations. Those without such taxes were automatically awarded a score of 100, but since they do not require a tax administration they should logically score 0.
KFSI-14 rates the secrecy of tax courts, giving jurisdictions without individual or corporation taxes a score of 100 – but they have no tax courts so should clearly score 0.

– One KFSI (15) inappropriately combines two components that are strongly associated with illicit financial flows with two that aren’t, which produces higher secrecy scores for certain jurisdictions.		Cayman Finance accuses the index of “discrimination” and “bias” for holding the jurisdiction (and all jurisdictions) to a more rigorous, evidence-based standard of financial transparency.

The Financial Secrecy Index’s indicators go beyond watered-down, politically negotiated standards on transparency (such as the OECD’s standard or the EU’s tax haven blacklist) to capture the limitations and loopholes that enable exploitative workarounds. Cayman Finance claims that its jurisdiction is discriminated against for having a beneficial ownership register but not making the data publicly available. The Panama Papers and, more recently, the Paradise Papers have shown how even if beneficial ownership information is collected, illicit financial flows including corruption and tax abuse can still flourish if the data is not made public. For this reason, all jurisdictions – not just the Cayman Islands – are given a higher (worse) secrecy score on indicators KFIS 5 and 6 if they do not make beneficial ownership data publicly available. Cayman Finance reframes this diligence as discrimination.

However, this isn’t the only reason the Cayman Islands scores a high secrecy score on KFSIs 5 and 6. As reported in detail, the Cayman Islands does not collect information on the legal owners of all corporations and does not collect information on beneficial owners of all limited liability partnerships. This uncollected information prevents the register from being truly effective at ensuring financial transparency.

Similar to Cayman Finance’s report on the State of Tax Justice, Cayman Finance attempts to deny established evidence on the harms of financial secrecy and tax abuse in order to deny the harm it inflicts on the world by enabling global financial secrecy. This approach mirrors Julian Morris’s approach to deny established bodies of evidence on other topics, such as climate change.

For example, Cayman Finance’s factsheet states: “KFSI-12 scores whether a jurisdiction has a consistent personal income tax, which seems based on the assumption that high- and progressive-income taxes equate to lower levels of tax avoidance and evasion – yet evidence suggests that the opposite is the case”. There is of course no assumption in our work that higher tax rates within a jurisdiction are associated with lower levels of abuse.

It is not, however, contested that large tax rate differentials between jurisdictions contribute to the scale and direction of abuse – when for example a secrecy jurisdiction offers a tax zero rate for artificially shifted income. But Cayman Finance seeks to argue that since the jurisdiction does not collect taxes to begin with, it could not possibly facilitate tax abuse. The same intellectually bankrupt and openly manipulative reasoning is used in Cayman Finance’s report on the State of Tax Justice.

In addition to bringing in Julian Morris to author the reports, Cayman Finance appears to have paid for articles publicising their reports to be distributed by Business Wire, a press release distribution service. This allowed their erroneous and misleading claims about the State of Tax Justice and Financial Secrecy Index to be published in over a hundred media outlets, including high profile, reputable outlets like Bloomberg, the AP and Yahoo! Finance. While some outlets like the AP display a short disclaimer next to Business Wire articles they reproduce (eg, “Press release content from Business Wire. The AP news staff was not involved in its creation.”), the paid-for wire allows Cayman Finance to manufacture an illusion of credibility for its misleading reports. It also allows Cayman Finance’s reports to come up higher in search results. One can imagine how a report defending the Cayman Islands on the Bloomberg website instead of the same report on the Cayman Finance’s website could at first glance look more credible to a policymaker, the next time the Cayman Islands finds itself under scrutiny.

Richard Murphy report and blogs on State of Tax Justice

Richard Murphy, a co-founder of the Tax Justice Network, published a blog the day after the State of Tax Justice 2021. The blog referred to a report he published in July 2021 criticising the State of Tax Justice 2020 but also included new criticism. Richard Murphy’s report is heavily featured in the Cayman Finance report authored by Julian Morris, a senior fellow at the Koch-funded Reason Foundation.

Richard Murphy was company secretary to Tax Justice Network after the organisation’s founding in 2003, and a subscriber to the original memorandum of association of the company. He resigned as a member in 2007, and as company secretary in 2009. Richard Murphy has not been listed as a Tax Justice Network senior adviser since 2013.

Richard Murphy authored the first standard for country by country reporting in 2003. Although initially resisted by the OECD, the reporting method was eventually backed by the G20 group of countries in 2013. The OECD produced a watered-down standard for use from 2015 and finally published country by country data in July 2020. This data has made it possible for the State of Tax Justice to report on countries’ tax losses to cross-border corporate tax abuse.

Almost all of the criticisms Richard Murphy makes in in report and blog are based on erroneous accounts of the State of Tax Justice’s methodology and at times on a significant misunderstanding of how the methodology works. Murphy repeatedly accuses the State of Tax Justice’s methodology of doing things it does not do and of not doing things it does do.

The exception is one issue that was originally raised on Twitter by Dan Neidle, head of the London tax division at Clifford Chance, and reiterated in Murphy’s report. Neidle questioned whether the impact of recent automatic exchange of information measures were accounted for in the State of Tax Justice 2020’s estimate of tax loss due to offshore tax evasion by individuals. Our analysis shows that the issue ultimately has no material impact on the results of the 2020 edition of the report, as explained in further detail below.

In the table below, we respond to each of the six key issues Murphy raised in the report he published in July 2021. Some of these points were reiterated and expanded on in the blog published on 14 July 2021, where the report was first made available.

Six key issues raised Response 
Report:
“First, it [the State of Tax Justice 2020’s methodology] uses Bank of International Settlement data that does not differentiate personal and corporate deposits. The report, which suggests that all the losses result to wealth, does not make that clear. This is simply wrong: some of the losses are not due to those with wealth.”

Blog:
“Firstly, that is because the data used for the purpose of this analysis came from the Bank for International Settlements (BIS) and relates to the balances on bank accounts held by both individuals and corporations by country. TJN, unfortunately, ignores that there are many good reasons why some companies e.g. reinsurers, might hold substantial cash balances offshore. They also ignore that some multinational corporations also run treasury functions from offshore for ease of regulation and not to avoid tax. Instead, they seem to assume that all the balances recorded by the BIS in tax havens relate to individuals. That is wrong.”		This is a false account of the methodology.

The methodology clearly states that BIS data does not differentiate between personal and corporate deposits, and goes on to explain how this data limitation is dealt with. We use the same approach as used in the peer-reviewed study by Alstadsaeter, Johannesen and Zucman, Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality, published in 2018 in the Journal of Public Economics. This limitation has not been ignored as Murphy claims.

The methodology explains on page 15:
“The BIS data on bank deposits has one important drawback: it does not differentiate between households’ deposits and corporate deposits. Therefore, the ultimate owner is not always attributed to the actual source country of the deposits. For example, if a German person sets up a shell company in Hong Kong and opens a bank account for this company in Switzerland, this will show up in the data as a Hong Kong-Swiss relationship, rather than a German-Swiss relationship. While this could be partially solved by only focusing on households, the BIS data does not offer a distinction between households’ and corporations’ deposits. In our approach we thus assume that households’ bank deposits are geographically distributed in a similar way as corporations’ bank deposits.”

The State of Tax Justice only uses the BIS data to estimate the distribution of offshore wealth, not to calculate its scale, and so Murphy’s claims that “the report suggests that all the losses result to wealth” is a result of Murphy’s misunderstanding of the methodology.
Report:
“Second, the estimation of tax losses does not recognise that there may be commercial reasons for some of these deposits despite this being referring to the fact in the methodology note. Some sectors that use the jurisdictions noted may have reasons to hold high cash deposits e.g. the reinsurance sector. There may be good reason to suggest that this might involve profit shifting, but to then include the cash deposits held in a second calculation risks double counting.”

Blog:
“Second, TJN calculates ‘excess bank deposits’ by country in proportion to GDP as an indication of tax haven activity. It assumes all such excess deposits are subject to tax abuse and are undeclared for tax purposes. That is bound to be wrong. First, that is because multinational corporations are very likely to declare their deposits as well as the income arising on them. Very often that declaration will be in a country where tax is due, and not in the tax haven itself. There are many cases of companies registered in tax havens but actually tax resident in places like the UK. TJN has not allowed for this.”		This is a false account of the methodology.

The methodology clearly states that it does not assume all abnormal bank deposits to be subject to tax abuse arising from financial secrecy, directly contradicting the claim.

Normal bank deposits are used only to estimate the distribution of offshore wealth, not its scale.

Regarding the comment that not all bank deposits in tax havens are there because of tax evasion, our methodology does recognise that GDP will not explain all variation in inward bank deposits, but is merely a first-order approximation of the relationship. This is why a calculation of bank deposits in proportion to GDP is used as only a first step. Relying on this calculation alone would indeed produce inaccurate results, but the State of Tax Justice does not do this. The report only uses the abnormal deposits to estimate where offshore wealth is likely hidden; we do not assume that all abnormal deposits are hidden or that tax is evaded on all of the proceeds.

The methodology explains on page 14:

“While some of the jurisdictions that appear in Table 2.1 are not routinely considered to be important destinations of offshore wealth (such as Italy or France) and their scores on the Banking secrecy indicator (column 2) are correspondingly relatively low, we choose not to exclude these countries from our consideration as destinations of offshore wealth. For such countries, the large abnormal deposits could be explained by other factors than financial secrecy offered by the destination country – such as unusually intense cross-border economic activity – but we do not see a way accurately to estimate the size of these effects. In the light of this caveat, our estimates of inflicted loss by countries with low secrecy scores may be somewhat overstated, while those by countries with high secrecy scores are likely to be understated.”
Report:
“Third, if some of the excess bank deposits relate to genuine (rather then shell company) the use of personal tax rates to estimate all the losses is wrong. Corporate tax rates should be used in some cases, and these are almost invariably lower than top marginal personal income tax rates as used in the SOTJ calculations.”		This is a point we have considered in the methodological review (including the possibility that the income be declared as capital gains rather than personal or corporate income, where the same logic can be applied). We quote here the full explanation from the methodology (page 15):
“While using PIT rates might be introducing an upward bias to our estimates (in the sense that governments would in reality not be likely to tax the returns at such high rates, perhaps because some of this income would be subject to the capital gains tax (CGT), which is generally set at a lower rate), we ultimately choose to use PIT rates due to two reasons.

“First, although in theory we are considering a full range of assets, in practice the numbers are driven by financial account holdings (to which PIT rather than CGT would generally apply). Second, there is an argument that if the returns were actually declared for PIT, individuals would have an incentive to lower the relevant tax rate (e.g. by structuring as capital gains rather than individual income) – however, we focus on the tax-evading element of the returns. Therefore, the income that is being evaded as things stand (without any avoidance response) would be subject to PIT rather than CGT.

“The existence of cases such as Italy where a lower rate than PIT would apply to income streams from declared offshore assets might suggest making more conservative adjustments on a country by country basis, and we will consider this for future work. We note, however, that even in such a case, the very existence of the offshore wealth is the result of an originally undeclared income stream. For that reason, applying the higher PIT rate to a hypothetical income stream generated by the offshore wealth – rather than to the original income stream that generate the offshore wealth itself – will understate the total tax losses very substantially.”
Report:
“Fourth, it is wrong (and historically the Tax Justice Network recognised this18) to assume that all offshore holding is for the purposes of tax abuse. Such deposits can be held for other reasons e.g. for commercial confidentiality, or to hide money from creditors and spouses to prevent claims being settled, or to shield assets from taxes other than those on income, which is now thought to be particularly commonplace in offshore tax planning. None of these give rise to any reason to not declare income for tax purposes.”		This point simply reflects a failure to understand the methodology.

It is wrong to claim that the methodology assumes that all offshore holdings are for the purposes of tax abuse. The methodology explicitly acknowledges that this is not the case and uses a four-step calculation process to estimate private offshore wealth-related tax abuse. The methodology dedicates six pages to this issue.
Report:
“Fifth, the assumption that cash deposits pay 5% interest might be best described in a number of ways, including ‘heroic’, ‘optimistic’, ‘unaligned with real world experience’ or just ‘highly unlikely to be correct’ when real world rates on cash deposits have rarely been much above zero for a considerable period of time, whichever currency is used to hold accounts in19. This rate is likely to be substantially overstated as a result and, as a consequence, so too are the tax losses likely to also be seriously overstated.”

Blog:
“But the wildest assumption is in the methodology note, where it is said that:

‘Following Zucman (2015), we assume that investments made in secrecy jurisdictions yield an average of a 5 per cent return.’

The trouble is that Zucman was considering investments, and TJN is specifically considering cash deposits. I did a little research on cash deposit rates in tax havens. In 2020 Barclays in the Channel Islands were offering 0.05% on US$5 million deposits, nothing on sterling deposits, however big, and nothing on euro deposits. I agree that rates had been higher in the past but the idea that cash earned 5% offshore when bank base rates have been close to zero in the last decade is somewhat surprising. Dollar accounts might have reached 1.5% at one time, but that was exceptional.”

This is again erroneous.

The methodology assumes a 5 per cent return on offshore investments – not cash deposits – like Zucman (2015).
At no point does the methodology state otherwise. The methodology does not specifically consider cash deposits as Murphy claims. Indeed, the excerpt that Murphy cites is a direct contradiction of what his claim: the methodology says “investments”, not “cash deposits”. It is difficult to understand how such an error could have been made.
“Sixth, implicit in the methodology is the assumption that the success that tax justice campaigning has had in requiring automatic information exchange from tax havens has had no impact on taxpayer behaviour. This is particularly surprising. The whole purpose of the tax justice movements campaigning to secure this advance was to create the smoking gun that would force a change in taxpayer behaviour20. This ‘smoking gun’ data has existed in most cases since 201721, meaning that it is highly likely that aware taxpayers are not now taking the risk of not disclosing bank deposit assets in offshore locations to their domestic tax authorities when those domestic authorities are likely to receive data upon them direct from the source banks with which they are held. Whilst it was once entirely reasonable to think that many who held offshore bank accounts would not declare them because the chance of being discovered was very low tax justice campaigning has now changed this situation. [*] To presume that all excess offshore bank deposits remain undeclared despite that success is a very surprising assumption that either undermines the credibility of all previous tax justice campaigning, or is wrong.”This issue was originally raised on Twitter by Dan Neidle, head of the London tax division at Clifford Chance. Neidle questioned whether the impact of recent automatic exchange of information measures were accounted for in the State of Tax Justice 2020’s estimate of tax loss due to offshore tax evasion by individuals. Our analysis shows that the issue ultimately had no material impact on the results of the 2020 edition of the report.

To determine the scale of wealth held offshore, the State of Tax Justice uses estimates published by Alstadsaeter, Johannesen and Zucman in their paper for Journal of Public Economics. Alstadsaeter et al estimate offshore wealth in 2017 to be equivalent of 11.6% of world GDP. Neidle and Murphy claim that the State of Tax Justice’s application of this 2017 estimate on 2018 estimates likely significantly overestimates the amount of wealth held offshore since 2018 saw a significant rise in number of countries exercising automatic exchange of information under the Common Reporting Standard. However, data published by ECORYS finds the scale of offshore wealth in 2018 to be equivalent to 11.4% of GDP: an immaterial difference. We will continue to track this phenomenon, and share with the aim and the hope that the automatic exchange of information will become an increasingly effective deterrent.

[*] This again is a completely erroneous account of the methodology. As explained above, the State of Tax Justice does not assume all offshore bank deposits are related to tax abuse and goes to great lengths to account for this.

Richard Murphy made new criticisms in his blog published the day after the launch of the State of Tax Justice 2021. We address these new criticisms in the table below.

Additional issues raised Response 
Murphy makes the following statement about the corporate tax abuse figures in the report:
“I will leave aside the figure for the loss of corporation tax. I have already published peer-reviewed research that shows that the basis for this claim is unlikely to be sound.”		The study that is referred to analyses country by country reporting data from EU banks, whereas the State of Tax Justice analysis country by country data published by the OECD on multinational corporations from around the world. Since both the source of the data and the underlying reporting standards are entirely different, it is unclear how the study relates to the State of Tax Justice or what implication could be drawn.
Regarding tax abuse by individuals, Murphy claims that the report has three main flaws:

“The first flaw is to assume that all offshore deposits belong to individuals. They clearly do not.

The second is to assume that none of the sums in tax havens are declared to the tax authorities that need to know about them. That is obviously absurd, and has never been true.

The third is to assume that a 5% rate of return can be earned offshore when it is widely known that most illicit funds held in those places are held in cash, and they will not be paying anything like that sum at present.”		All three of these claims made by Murphy result from a complete misunderstanding of the methodology, only possible by ignoring the explanations published.

Regarding the first claim, we do not assume that all offshore deposits belong to individuals, as we have already explained above.

To the second claim, we do not assume that none of the sums in tax havens are declared to tax authorities. We agree that would be absurd, and for that reason it is simply not how our methodology works.

The 5% rate of return on all offshore financial wealth is assumed by other researchers as well (following Zucman, 2015). It is the combined rate of return on all offshore wealth, ie including securities and bonds. We do not claim anywhere that these are returns on cash deposits.

Conclusion

The State of Tax Justice is the first study to report detailed country level breakdowns of global tax abuse. This unprecedented level of information and accuracy is helping push tax justice issues up international and domestic agendas and usher in meaningful tax reform.

Research like the State of Tax Justice that has the power to inspire and support change, and to reach millions of people, will inevitably come under scrutiny and attack. We welcome and encourage that scrutiny and accountability. As with all our research, we will continue to evaluate and refine where necessary our methodology in future editions of the State of Tax Justice. From the review of criticisms here, however, no claims of error stand up, and in most cases simply reflect a failure to engage with the methodology. But this is also valuable feedback, and may suggest for example the need for simpler versions of our methodology documents. We will in any case continue to seek expert stakeholder feedback on each of our flagship publications, and to welcome additional input.

Jersey’s Pandora’s Boxes: the Tax Justice Network podcast, December 2021

Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app.

In edition 117 we take you to the tax haven of Jersey off the coast of France, and the intruiging story of the discovery of 333 boxes of incriminating evidence of fraud. Those boxes have revealed some ugly truths about this small island tax haven that affect us all. 

Featuring:

The transcript of this podcast is available here (some is automated and may not be 100% accurate)

It’s like a movie set. Because what you think you’re looking at and what’s really happening are two very different things. For me, it’s about accountability. I want to see reform in Jersey. I want a spotlight on judges, on the police, on the entire justice system.”

~ Tanya Dick-Stock

We want to change the narrative. And what people need to understand is that when you bring that bad element onto your turf, it all comes with a cost and it’s like a cancer. If you don’t deal with it, it will kill the host, it’s inevitable.“

~ Darrin Stock
Jersey’s Pandora’s Boxes #117

You can hear the Taxcast edition on rising inequality and dysfunction in Jersey here: https://taxjustice.net/2019/04/26/inequality-and-dysfunction-in-the-tax-haven-of-jersey-a-taxcast-special-edition/ 

You can also read more about this story on the following links:

[Image credit: “P9060140” by dnas2 is licensed under CC BY-NC-SA 2.0]

Here’s a summary of the ‘Jersey’s Pandora’s boxes’ story with some excerpts from the podcast:

Jersey is a beautiful place. It’s also a British Crown Dependency and tax haven, offering all sorts of financial secrecy. There’s an estimated £1 trillion sitting in this tiny island’s trusts, companies, funds and foundations. It’s a major artery into the City of London.

Now, picture St John’s Manor. a Jersey estate of 58 acres – a spectacular manor house with landscaped gardens, a lake, its own chapel, and a Japanese water garden.

Says Tanya Dick-Stock, the daughter of Canadian multi-millionaire John Dick, “It’s in many ways like a fairy tale, it’s got ponds and geese and chapel, and there’s nothing like it, the air is better, you sleep better, or I used to sleep better there and I really loved it. I’d hoped to grow old there.”

Her father John Dick has been immersed for years in court cases involving trusts, transactions, banks and law firms across the world. Much of them concern the activities of a Jersey trust company called La Hougue, which was once head quartered at St John’s Manor. Says Tanya, “For some reason different newspapers, news sources are still saying that my father allegedly owns La Hogue, or I’m alleging he owns La Hougue. No, I’m not alleging anything. A court of law, not one, but two have adjudicated John Dick owns La Hougue. It’s not me saying it, it’s a court of law.”

At some point her parents set up a trust: “I guess you could kind of look at it as an inheritance, actually the trusts were set up as part of my parents’ divorce settlement and so a large part of the marital assets instead of being divided between the two of them, they put them into trusts specifically for my brother and myself. There were three different trusts there and one of them, by my 40th birthday, I was to receive half of the trust assets and then my brother upon him reaching the age of 40 would have gotten his half. And how much was in the trust – we’ve tracked hundreds and hundreds of millions of pounds, so I think there’s at least half a billion – we’re not done calculating yet.”

It’s clear that Tanya didn’t have your average childhood, being from the family that she was. She says her father told her that the money in her trust had gone: “In 2010 he came to me one day and basically said, ‘bad news Tanya, uh, the trusts are bust, all the money’s gone and I’m really sorry about that.’ And I’m thinking, whoa, hold on! There is no way that this money can be gone! I want to know what happened! When I did start digging into it there was still about a hundred million in assets still in the trusts. At the end of the day, I was able to save about a hundred million.”

Her father claims he was also the victim of fraud and other trustees of La Hougue have denied allegations put to them by many journalists, although through his lawyer a former trustee did admit in a US court to fabricating documents. Tanya and her husband Darrin Stock have been battling her father in the courts, and speaking out publicly for quite some time.

“You don’t put yourself through what we have for money and now it’s
about justice and it’s about everybody else. It goes beyond a movie, if you saw a movie, you wouldn’t believe it” says Tanya.

Darrin Stock is Tanya’s husband: “People on that island are scared to death of the authorities there. And I mean, who wants to live that way? And you rapidly lose the gas to fight when it’s just about the money. I’ve heard enough stories now that I actually have nightmares about what I’ve heard and it bothers me so much. Why we’re doing these interviews is not for Tanya’s sake. We’re doing these interviews for the other people. We can be a voice. We can be an organiser. We can be the lightning rod to help bring change.”

“Since coming forward,” says Tanya “I’ve been contacted by a lot of victims, people who don’t have a voice and they have encountered some of the same things that I did, I am by far not the only one who’s been stolen from and defrauded.”

Darrin says “It took us almost three years to come to the conclusion that we were going to go public. And then when Tanya and I made the decision to go public, we decided we couldn’t go kind of public. Either you were going to do it all, or you just don’t do any. And so then we decided that we had to put our name to it.”

Speaking out publicly has meant laying out every aspect of their lives for
journalists to check up on, including former investment banker Darrin’s own dispute in the past over a tax bill in the United States.

Back in Jersey it’s almost ten years ago now that Tanya discovered the ‘Pandora’s boxes’ of incriminating evidence. She found them in St John’s Manor, the incredible place where she grew up. At the time she was preparing for her wedding there.

“In 2012 we were married on the 4th of July. And in the process of
planning for the wedding I was looking for a place that I could store all the boxes of Tiki torches and flower urns and all the stuff that was coming in and I needed a staging area. There was an old squash court and nobody used it. So I thought, well, that’s perfect, it’s close enough to the house, you know, so I got the master key out and I go running down there, I open the door and much to my dismay, I’m looking around and there are just boxes and boxes and boxes. Did you see Raiders of the Lost Ark? You know that last scene where they’ve got the Ark of the Covenant and it’s been boxed up and they’re wheeling it in to that warehouse with all the boxes, and the camera pans back and you just see more boxes, and more boxes. And that’s what it felt like, ‘cause they were piled as tall as I was, and my heart sank because I’m thinking ‘I need this space for my wedding!’ And they’re dusty and they’re dirty and there’s like dried leaves and spider webs and dead bugs. And I’m thinking, ugh, this is trash, I got to get rid of it. So my first thought is let’s toss it. And then I’m looking at the labels on the side and I noticed that there are trust names and some of them are my trust names.”

There were 333 boxes in total, and what turned out to be 350,000
documents. After the wedding and the honeymoon Tanya and her husband Darrin started to go through the boxes. There’s a treasure trove of evidence on some who used La Hougue’s services – tax cheats, a porn king and convicted tax fraudster, Russian and British oligarchs, there are even links to the famous missing Botticelli Madonna and Child painting from 1485, not to mention the disappearance of more than $100 million from the notorious US savings and-loans scandal back in the 1980s. As incriminating evidence mounted, Tanya’s husband Darrin followed the trail to Panama, the infamous tax haven exposed by the Panama Papers.

“La Hougue tried to move from Jersey in 2007, 2008,” he says. “La Hougue
changed its name to PanTrust and moved to Panama. PanTrust is the extension of La Hougue. So in 2015, as we’re digging into the boxes deeper and then we were like, well, maybe we should go to Panama, you know, and go down there. And everybody’s like, ‘Panama is so corrupt and you’ll never get anything out of it’ and we thought well, I mean, why not take a shot, right? So I myself flew down to Panama to meet with the regulator.

We’d gotten some legal counsel down there and what they had prepped me for was basically that we were going to go in and make a formal complaint to some junior person and then that was going to, you know, probably have a junior lawyer involved. And then it would take an hour or two, then we’d go. I walk in to the meeting and it was pretty obvious early on that something was afoot because they actually took us up to the main floor of where the headquarters of the regulator is, because in Panama, the trust world is regulated by the banking division and so the head of regulation is actually a cabinet level position. So you’re talking about an actual government agency that you’re dealing with, appointed by the president of Panama. I walk into this boardroom that’s got 40 people sitting at this table. I mean, the head of the investigation, the head of police, the head of banking, the regulator himself is there, their lawyers are there. And so we have, we have triggered something, we have walked into something and we don’t know what it is. Shortly after that meeting the Panama regulator terminates Pantrust’s trust license. The Panamanian regulator took the unprecedented step of issuing an unbelievably scathing letter of just the danger to society that this organisation is. Panama of all places where everybody said they would do nothing is the only jurisdiction that actually did something, which is the shocking part. And you look back at Jersey and you’re expecting them to actually be the ones that would be the upstanding white Knight. And they want nothing to do with this.”

Tanya’s father John Dick denies any involvement in fraud. Tanya does remember as a child going into her dad’s office and getting told off for playing with a load of old typewriters, old ink, old sheets of paper, stamps, all sorts of things. That’s significant because of some of the things they found in the boxes, as Tanya explains in the Taxcast:

“Some things you just know are wrong like, you know I ran across a memo and they were talking about ‘you need to be careful when you’re fabricating this document that you use old paper and old ink. So if they test it, they can’t tell that it’s a fake.’ And yeah, I think everybody pretty much understands that that’s bad.”

After going through the boxes with a team of experts Tanya and Darrin went to the police in Jersey, expecting them to investigate:

“I was told that Jersey places an affirmative duty on its people that if you see suspicious activity you are bound by law to go and report it. You don’t have a choice. So, you know, talk about suspicious activity, there was evidence of money laundering, fraud, identity theft, so Darrin and I, we went to the police and we filled out police reports, one of the detectives came to the squash court and he’s looking around all of these boxes and he says, ‘so all of these boxes are fraud?’ And we said, ‘yes’. And he goes, ‘so it’s not just like every day records and you know, a couple of bad documents thrown in?’ We’re like, ‘well, you know, we haven’t been through all the boxes, but no, I mean, it’s pretty chock-a-block with fraud.’ And so he takes the cover off one of the boxes, he reaches in, he pulls out a random piece of paper and it talks about shredding the documents, which is against the law, you have to keep the documents for trust companies. And it talks about shredding the documents, hiring commercial shredders, getting black bin bags and then burning them at the tip. So he looked at that and he went, ‘yep okay, I take your point.’ And then the police seized the documents and the detective said it was one of the worst cases he’d seen where there was such a plethora of evidence. And it went from him being very excited about prosecuting it to him going, ‘oh, by the way, I’m uh, kind of retiring.’”

Tanya and Darrin say it’s when when they began to engage with law enforcement and the courts in Jersey that the realities of a State captured by finance really started to show themselves. “There’s a culture in Jersey that they call ‘the Jersey way’,” says Naomi Fowler, the Taxcast podcast host, “you know, you don’t stand up and speak out against the kind of insularity and conflicts of interest that you get in a small jurisdiction like this, it’s one of the reasons so many small islands tend to become popular places for secretive finance sectors.”

“I never understood it until I found myself in front of two Jersey judges,” Tanya says. “They were both my father’s former lawyers for 20 some years. The head of the police commission, he was also my father’s former lawyer, I mean the conflict of interest is astronomical. When we started going through the boxes, I found another document too that made it very clear – the trustee of La Hougue, the guy who was doing the day to day stuff, there was a memo he sent to my father and one of La Hougue’s clients was very unhappy and had threatened to go to the Jersey regulator. There’s a memo that I found that was in the boxes where he writes to my father and he says, ‘well, one of our clients has threatened to go to the Jersey regulator. He’s very unhappy right now. And I told him that he could basically pound sand and I’m not worried about it because we’ll just immediately pay our way out of it as usual.’ I’m like – pay our way out of it as usual!?!”

Before the police came to take all the boxes away Tanya and Darrin were able to copy a large chunk of the documents, The police later allowed them access to make further copies, as well as giving them a digital copy of what they had copied. They estimate they have about 80% of what they originally found and they are making much of that accessible to journalists through
the Organised Crime and Corruption Reporting Project to help facilitate further investigations.

“Jersey is like a movie set,” says Tanya. “Because what you think you’re looking at and what’s really happening are two very different things.“

“Yeah,” says Darrin. “It’s important for other people to pay attention to what’s happening here, because this really affects everyone, the rule of law.“

“I’ve spoken to people who’ve lost their pensions, lost everything through scams that have used offshore secrecy and the impunity that can
exist in those places, and it’s been really devastating to them,” says Taxcast host Naomi Fowler. “But tax havens, secrecy jurisdictions also attract a lot of people doing unsavoury things, hiding criminal, proceeds, cheating on their taxes, that type of thing. And they’re not going to go to the authorities when they get ripped off. So, you know, you have this really big culture of impunity left right and centre. And there’s often a kind of panic to protect the jurisdiction from any negative publicity, from any scandal because they
don’t want to drive away the money.”

“Yeah,” says Darrin. “When we started pushing on this, we’ve run across some horrific crimes, I mean, it’s very black and white what had happened and Jersey would not investigate it. And on the surface, I think people look at that and they go, ‘Jersey’s trying to protect its good reputation.’ And the reality of it is, is they’re not, what they’re really trying to do is protect their bad reputation. Because what they’re trying to tell the underworld is ‘come to us and nothing will ever be investigated. You can do whatever you want and nothing will be investigated.’ And that’s the signal that they’re sending to the underworld to bring the business there. Where I think the average guy walking down the street sees or hears this rumour that Jersey is not doing an investigation and they’re like, ‘well, they don’t want to tarnish their image’ – you’re missing the point. It’s quite different. You know, we’ve been contacted by people in Jersey that have had their homes stolen. And that’s why Tanya was such a threat to them, sitting with boxes of some of the most incriminating evidence, and you know, the last thing they’re going to do is do an investigation.

What does it mean to us as a society? The system has been bastardised in a way. Now it works for the 2% and it punishes the other 98%. And what we want to be able to do is help Jersey spin it backwards, where it helps the other 98% and it punishes the 2% that are doing the crimes.

And what people need to understand is that when you bring that bad element onto your turf, it all comes with a cost. It’s like a cancer. If you don’t deal with it, it will kill the host, you know, it’s inevitable. They’re not going to investigate anything because any investigation is going to unearth what they don’t want the world to see. And that’s the tragedy. At some point, you get to a point of no return and I think that’s where Jersey’s gotten to – it’d be the last place you’d do business! We’re talking to the people in Jersey and the people of Cyprus and the people of the United States and the people of England, because what’s happening is the rot that’s in Jersey, and I could give you example after example after example of where they’ve exported it all over the world and absolutely decimated your courts, and you don’t even know it. This is a much bigger picture and it literally touches each and every person.”

“For me, it’s about accountability” says Tanya. ” I want to see reform in Jersey. I want a spotlight on judges, on the police, on the entire justice system.”

It’s now almost ten years since Tanya and Darrin first discovered these boxes of evidence in St John’s Manor, Jersey. In Panama, the authorities revoked La Hougue’s sister company’s licence so it could no longer operate from there. In the US there have been important admissions in court, and litigation is ongoing. In Jersey there have been no criminal charges, prosecutions, or regulatory penalties imposed. Tanya Dick-Stock now faces huge court costs and is blocked from participating in Jersey court proceedings. These Jersey rulings, with all their potential conflicts of interest, could prejudice, or at least influence courts in other jurisdictions.

Financial secrecy is at the heart of this unresolved scandal and it really needs to go. For that laws must change. And financial regulators and tax authorities must be independent, well funded and empowered to enforce those laws.

Do listen to the full story in the Tax Justice Network podcast, the Taxcast.

Tax Justice Network Portuguese podcast: Auditores fiscais: heróis invisíveis

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business) produced by Grazielle David, Daniela Stefano and Luciano Máximo. All our podcasts are unique productions in five different languages – English, Spanish, Arabic, French, Portuguese. They’re all available here. Here’s the latest episode:

Auditor fiscal, técnico alfandegário, cobrador de impostos. Sem essas trabalhadoras e trabalhadores não teríamos arrecadação de receitas para um governo criar e executar políticas públicas que promovam direitos, como educação, saúde, saneamento básico e muitas outras.

O É da sua conta de dezembro de 2021 traz histórias impactantes desses heróis e heroínas invisíveis e a importância do seu trabalho. Profissionais aposentados do fisco narram situações de trabalho nas quais arriscam a própria vida e especialistas falam sobre a importância de fortalecer a administração tributária em tempos de austeridade fiscal.

Naquela época [anos 1960, 1970], vários colegas foram assassinados. Um episódio ficou muito conhecido na cidade de Inhumas [Goiás]: um colega chamado Everlan estava com outro colega fiscalizando uma empresa de um cerealista. Em dado momento o empresário apanhou uma arma e disparou contra os dois auditores. O Everlan veio a óbito e o outro escapou por pouco.”

~ Gilvan David, auditor fiscal aposentado

Tinha um cidadão em Curitiba que movimentava mais de US$ 20 milhões em várias contas bancárias. A gente descobriu que ele não declarava imposto de renda. Investigamos quem era a pessoa e fomos atrás. Chegamos numa casa bem simples, mal cuidada. Morava lá um senhor de uns 60 e poucos anos, cabelo já bem grisalho, com um calção quase caindo e uma camiseta toda amassada, ruim, estragada, feia. Arregalou os olhos para gente e ficamos medo. A gente se identificou e disse que precisava identificar a origem do dinheiro. A princípio ele se negou a falar, mas a gente continuou insistindo com muito jeito.”

~ Clair Hickman, auditora fiscal aposentada

É preciso que os agentes do fisco tenham garantias, prerrogativas que os protejam do assédio institucional, da perseguição, da retaliação e eventualmente até mesmo da demissão.”

~  Charles Alcântara, Fenafisco

Os ricos são muito bons em fazer lobby para garantir que as pessoas mais pobres paguem os impostos e eles, não paguem. Por isso a gente precisa de uma administração fiscal forte, não apenas tecnicamente forte, mas também politicamente forte.”

~  Nick Shaxson, Tax Justice Network

Participam dessa edição:

Auditores fiscais: heróis invisíveis #32

É da sua conta é o podcast mensal em português da Tax Justice Network. Coordenação: Naomi Fowler. Produção e apresentação: Daniela Stefano, Grazielle David. Redes Sociais: Luciano Máximo. Download gratuito. Reprodução livre para rádios.

Penguins hold millions in Australian banks: revealing trends from Australian and German banking statistics

Automatic exchange of bank account information (the A of the ABCs of tax transparency) is a crucial tool to tackle offshore wealth and tax evasion by disclosing to tax authorities information on the foreign bank accounts held by each country’s taxpayers. It also provides useful data to reveal offshore strategies used by those taxpayers to hold wealth abroad. As described in this blog post and further explained in this brief, banking data can reveal information such as Latin American elites preferring companies while Brits opt for discretionary trusts.

But not everyone can enjoy the benefits of the automatic exchange of banking data. The OECD system for exchanges, called the Common Reporting Standard (CRS), still excludes lower income countries. For authorities of these excluded countries, the best they can hope for is that financial centres will publish basic statistics on bank accounts disaggregating information by country of residence of the account holder. This data is insufficient for them to determine the identity of any taxpayer, but it provides basic data for analyses and trends.

Thanks to support from the Tax Justice Network Australia and Tax Justice Network Germany, Australia and Germany published the first batch of statistics in 2020. In 2021 both countries updated their statistics regarding 2019 (Australia in a machine readable format!). Here are some highlights.

Australian statistics: account holders “resident” in uninhabited islands

Most countries require their financial institutions to collect and report information on account holders as long as they are resident in a country participating in the OECD automatic system (the rationale for this is that if the account holders are resident in a non-participating country their information cannot be shared with their authorities, so why bother collecting their data). This means that Swiss banks collect and report information on German or Brazilian account holders to authorities, but not on Bolivians because Bolivia isn’t participating in the OECD automatic system. However, Australia is among the transparency champions (together with Argentina, Estonia and Ireland) who apply the so-called “widest” approach, where information on all non-residents is collected and reported to authorities, even if authorities from these “widest” countries (eg Australia), cannot yet exchange the information on the residents from non-participating countries such as those from Bolivia.

Thanks to this disclosing of data on any non-resident (regardless of whether their country is participating in the OECD system), Australian statistics reveal a really problematic situation: Australian banks have determined that many account holders live in uninhabited islands. To understand the gravity of this, one must consider that the whole system relies on banks and other financial institutions determining the (real) residence of their account holders (usually where they live or where they are incorporated in the case of an entity, assuming that this is also where they are tax resident) and sending the banking data to their corresponding country so that authorities of those countries can verify if the foreign accounts have been reported and the corresponding taxes were paid. Determining the real residency is already challenged by the abuse of golden visas which allow individuals to pretend they are residents of secrecy jurisdictions so that their information is sent to the wrong country. Australian statistics, however, point at something worse.

As described by this article, Australian banks have identified account holders as residing in uninhabited islands including Norway’s Bouvet Island, whose “only vertebrate residents are thousands of seals, seabirds and penguins”. The account balance corresponding to Bouvet Island amounts to more than 2.4 million Australian dollars. In addition, close to one million Australian dollars also correspond to another uninhabited island, the Herald Islands and McDonald islands. There are also 20 accounts from account holders of Antarctica. If these mistakes are present in a country transparent enough to publish statistics, it’s troubling to think what worse mistakes may be present in much more secretive countries.

In addition, the usual suspects continue to have a big role in holding offshore funds in Australian banks. By calculating an average account balance size (account balance divided by number of accounts), the typical tax havens still top the ranking (without much change from 2018). Account holders from the Marshall islands hold on average $2.9 million in each account, followed by Tuvalu, BVI, Jersey and Cayman Islands. (To put things in perspective, account holders from the US have on average an account balance of $141,000). This was the only possible estimate given that Australia only publishes the number of accounts and their account balance by country, without distinguishing between individuals and corporate account holders, or informing on the annual income of these accounts.

German statistics: the UK, Switzerland and Canada refuse to be included

On the bright side, Germany publishes information on accounts held by non-residents in German financial institutions (as Australia does) as well as on German taxpayers’ holdings abroad. It discloses the number of accounts and account balances per country of residence (like Australia) but Germany also discloses the account’s income. However, unlike Australia which publishes information on all 248 jurisdictions, Germany doesn’t publish the details of account holders who are resident in countries excluded from the OECD system. This means that we cannot know how many accounts from “uninhabited” islands have been reported by German banks. This also means that authorities from excluded countries such as Bolivia don’t get even aggregate data on the holdings by Bolivians in German banks. What’s even more troubling is that Germany doesn’t even publish statistics regarding all countries participating in the OECD system. As described by the next extract from the German non-machine readable statistics (it’s a pdf and therefore hard to process by researchers), some secrecy jurisdictions (with an * instead of a value) refuse to have even aggregate statistical data on their residents published by Germany, even though this data belongs to Germany.

We have written about this in our previous blog on Germany’s 2020 statistics (where the same problem happened). In essence, we consider that aggregate statistics should be public because they don’t compromise anyone’s identity (you cannot know that British John Smith has an account in a German bank, let alone how much he has, just by publishing that “Brits have in total $100 M in German banks”). However, Germany asked countries if it was ok to publish statistics and many said no: Switzerland, the UK, Canada, Bermuda, Belgium, Isle of Man, Japan, South Korea. To put this in perspective, even the UAE, Jersey, Cayman Islands or BVI allowed Germany to publish statistics on their residents’ holdings in German banks.

One could argue that information sent to Germany by say Switzerland (about Germans’ holdings in Swiss banks) belongs to Switzerland and that’s why Germany should ask for permission. But information held by German banks in Germany (sent to German authorities by these German banks) should belong to Germany, regardless of whether it refers to German or Swiss or British account holders, so the * that blocks information from some countries (below) is plainly wrong.

Below are some observations of German statistics (after manually processing the data from the pdf they published), considering both accounts held by Germans abroad and accounts held by non-residents in Germany.

a) Highlights of German taxpayers’ foreign holdings

b) Highlights of non-residents’ holdings in German financial institutions

Conclusion

Statistics are a crucial transparency tool which should be published by all countries, following the examples of Australia and Germany. They allow authorities from excluded countries to obtain basic data about their residents’ offshore holdings, at least to get them interested in trying to join the system or even to make requests for information. Statistics allow authorities and international organisations to supervise the exchange system, find trends to foster investigations (eg “where did the German money in Jersey banks go to?” or “why are Dutch account holders reporting way more income in German banks than anyone else?”). They also allow civil society organisations and journalists to find red flags and investigate (eg “banks are determining account holders as resident in uninhabited islands”) as well as to hold authorities to account (eg “why are banks still reporting account holders as resident in uninhabited islands for a second time?”).

[Image credit: “Antarctica 2013: Journey to the Crystal Desert” by Christopher.Michel is licensed under CC BY 2.0]

Tax Justice Network Arabic podcast #48: الجباية ببساطة #48 ماذا تبقى من مشروع طلعت حرب؟

Welcome to the 48th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطة contributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available on most podcast apps. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can follow the programme on Facebook, on Twitter and on our website.

الجباية ببساطة #48 ماذا تبقى من مشروع طلعت حرب؟
في العدد #48 من الجباية ببساطة نستضيف الباحث الإقتصادي المصري محمد جاد، أحد مؤلفي كتاب “ماذا جرى لمشروع طلعت حرب؟ مصر والنظام المالي في مئة عام” للخوض في تأثر السياسات النقدية المصرية بمشروع طلعت حرب ومدى تطابقها مع تجارب نقدية أخرى في المنطقة من حيث الإنفتاح على النظام المالي العالمي والمانحين الدوليين. زيادة على جولة في الأخبار الضريبية والإقتصادية للمنطقة العربية والعالم.  

الجباية ببساطة #48 ماذا تبقى من مشروع طلعت حرب؟

تابعونا على صفحتنا على الفايسبوك وتويتر https://www.facebook.com/ TaxesSimply Tweets by taxes_simply

The human right to care and tax justice

On International Human Rights Day today, we support and highlight the call for the human right to care and the pivotal role of tax justice in realising this right. 

The Covid-19 pandemic, the climate crisis, debt burden and the fiscal austerity of recent decades have brought untold burdens and hardships on those who need care and those who care.  We have come to see how care and caring is so poorly valued; either worthy of low pay or no pay at all.  

The pandemic has brought about a laser-like focus on care and understanding the implications of care and of it being predominantly the domain of women and girls. In social and health care settings, in informal settings or in the home, women are on the front line as providers of care. According to a IMF/UN study, women account for 70 percent of the health and social care workforce responding to the pandemic.

Caring should be valued with decent pay and decent work conditions. It should not be a target of financial extraction or commodification. Caring for others, whether it is family or part of a formal role, should not mean that other fundamental rights, such as health, education and livelihood are foregone.  

Needing care or providing care must be accompanied by the right to dignity afforded by professionalised services, social protection and adequate living conditions. The impact of constrained public budgets and countries’ indebtedness leaves those who need care or who care, predominantly women, facing additional hardships without adequate public services and social protection.

Governments need to reclaim their primary role as providers of care, as regulators, and as professional standards setters. They often counter this by saying they have hard fiscal choices to make, but in doing so they neglect their role to guarantee economic and social rights.   

Governments across the world are failing to maximise available resources. Last month, the 2021 edition of the State of Tax Justice revealed the critical importance of maximising resources for the advancement of human rights and substantive gender equality. The report found that countries are losing a total of $483 billion in tax a year to global tax abuse committed by multinational corporations and wealthy individuals – enough to fully vaccinate the global population against Covid-19 more than three times over. It is far from credible for governments to claim that the right to care with dignity is not affordable.

On International Human Rights Day we are sharing a set of resources in support of the Manifesto of Care. Prepared by Public Services International and its allies including the Center for Economic and Social Rights, Global Initiative for Economic, Social and Cultural Rights, the Global Alliance for Tax Justice and Tax Justice Network, these materials advocate and explain the human right to care.

The Care Manifesto: Rebuilding the Social Organisation of Care (Public Services International) sets out 5 Rs of care:

RECOGNISE the Human Right to Care; REWARD and remunerate care work; REDUCE the burden of unpaid care work on women; REDISTRIBUTE care work within households, among all workers, eliminating the sexual division of labour and between households and State; RECLAIM the public nature of care services.

The report:  The Social Organisation of Care (Public Services International)

The blog: The Human Right to Care (Veronica Montufar, PSI)

Video: Recognize Care

Video: Reclaim Care

Video: Reward Care

HC-One: Death, Deception, Dividends

December 2021 Spanish language podcast, Justicia ImPositiva: Los papeles de Pandora, el fraude fiscal, los bancos y la pandemia

Welcome to our Spanish language podcast and radio programme Justicia ImPositiva with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast favorita.

En este programa:

INVITADOS:

Los papeles de Pandora, el fraude fiscal, los bancos y la pandemia #66

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Tax Justice Network proposal to FATF’s consultation on beneficial ownership for legal persons

The Financial Action Task Force (FATF) in charge of the Recommendations on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) has opened a consultation on the reform of Recommendation 24 on beneficial ownership for legal persons.

We have sent written submissions and participated at calls on Recommendation 24 and recently Recommendation 25 (on beneficial ownership for trusts and other legal arrangements). Now, the FATF is inviting feedback on their proposed amendments to the text of Recommendation 24.

You may find our proposed amendments below. If you have any comments or feedback, please write to [email protected]

In essence, here’s a summary of our proposals:

1)      Application to all legal vehicles (eg trusts), not just to legal persons.

All changes to Recommendation 24 (asking for beneficial ownership registration, public access, etc) should also apply to trusts (which are currently covered and subject to less transparency under Recommendation 25). The main argument in favour of this equal treatment is two-fold. First, trusts are a type of complex legal vehicle subject to many types of abuses (and widely mentioned in the latest Pandora Papers leak) so they should be subject to even more transparency (or at least as much as) legal persons, not less. Second, private foundations share the same control structure and goals as trusts, and given that they are considered legal persons, they are already subject to Recommendation 24, so there’s no reason why trusts should be considered special or different.

2)      Mandatory beneficial ownership registries (without alternative mechanisms)

While a multi-pronged approach using many sources of information is welcome, a central beneficial ownership register should become mandatory for all countries, without allowing for “alternative mechanisms”. As of April 2020, mora than 80 jurisdictions already had laws requiring beneficial ownership information to be registered with a government authority. As of November 2021, that number is closer to 90 with new relevant countries such as the United States. Given that countries are already allowed to use any government authority, eg the commercial register, the tax administration, the financial intelligence unit, the central bank or a new beneficial ownership register, there is no need to water-down this requirement by allowing “alternative mechanisms”.

As for the cost of the registry approach, countries with low resources should consider that requiring beneficial ownership registration need not involve any new cost. The cheapest option is to add a field on beneficial ownership to the forms that must already be registered by local entities and taxpayers (eg incorporation form with the commercial register or a tax return with the tax administration).

3)      Central registries

While countries should be allowed to have as many local registries as they need (eg for federal purposes) all information should be centralised in a digital platform. This central platform should contain information on beneficial ownership and for all types of legal vehicles, and ideally also legal ownership information to avoid consistency problems. This way, it will be possible to know all the legal vehicles related to a beneficial owner, no matter in which district or province this vehicle was incorporated. Likewise, by having information on all legal vehicles as well as legal and beneficial ownership in the same place, it will be possible to ensure consistency, to prevent cases where the beneficial ownership register describes that company A is owned by company B which in turn is owned by John, but the shareholder register states that company A is owned by trust X.

4)      Verification independent from risk approach

Verification is a crucial element to ensure that beneficial ownership registries will be useful. While obliged entities (eg banks) and the general public (civil society organisations, investigative journalists) should be encouraged to report discrepancies or indicate on other red-flags, this should essentially be a responsibility of countries, not something that they should be able to outsource. In fact, the whole purpose of now reforming Recommendation 24 to require beneficial ownership registries is because the old approach (relying on banks as the source for beneficial ownership information) was proved insufficient. In other words, if banks were proven not to be effective as the only source for beneficial ownership information, it’s not possible to expect the verification can be effective, if only banks are required to do it. It should be governments’ role to ensure that registered beneficial ownership information is trustworthy.

In addition, reporting discrepancies should be one measure, but certainly not the only one. A criminal could have lied both to the registry and to the bank. In this case, there will be no discrepancy, but information will still be inaccurate. Verification should involve cross-checks, data validation and red-flagging.

With regard to applying verification based on a risk-based approach, one analogy may be relevant. Just as all passengers must go through airport security, all legal entities should be subject to verification mechanisms. Otherwise, verification would fail to identify the “unknown unknowns” as well as needing to catch up with an ever changing and sophisticated criminals. For instance, the UK had to widen the scope of beneficial ownership registration. First, for companies and limited liability partnerships (LLPs). Then, to Scottish limited partnerships after finding out that they were involved in major money laundering schemes. Now, there’s evidence that limited partnerships from England and Wales and Northern Ireland are increasingly being misused, so the UK should be required to subject them to beneficial ownership registration too. It would have been easier to cover all partnerships from the beginning.

A risk-based approach should be applied but only to determine which entities should be subject to enhanced verification procedures (eg filing additional documentation as part of registration, in-person meetings, etc). The risk-based approach should also involve publishing statistics on the typical structures of legal entities (number of layers, nationality of layers, type of entity of each layer, number of legal owners and beneficial owners and their nationalities and residencies) to determine outliers. Structures considered too complex compared to the “statistically” normal one, should also be subject to enhanced verification procedures.

5)      Beneficial ownership registration for foreign legal vehicles with link to a country

Contrary to general practice, beneficial ownership registration should be required not just for locally incorporated legal vehicles (as is currently the case in most countries), but especially for any foreign legal vehicle which has a link to the country. These foreign legal vehicles may be creating illicit financial flows risks in the country (eg holding real estate or bank accounts as part of a money laundering scheme) and there may be no information about them in the beneficial ownership register. For this reason, links that would trigger beneficial ownership registration should be as comprehensive as possible:

(i)                  holding registrable or valuable assets (eg real estate, cars, ships, aircrafts, art work, etc),

(ii)                having relations with an obliged entity (holding bank accounts, engaging with a lawyer, notary or accountant),

(iii)               having operations in the country (eg providing or acquiring goods or services, including free services such as social media, streaming or other digital services),

(iv)               having income or being considered tax resident or subject to tax, or

(v)                 having a local participant who is resident in the country, participating either as a legal owner, beneficial owner, director, trust party, etc.

6)      Beneficial ownership definition and thresholds

The beneficial ownership definition should be based on the FATF Glossary, rather than on the customer due diligence rules of Recommendation 10. In essence, this means that a beneficial owner should be any natural person who meets at least one prong: ownership, control or benefit (rather than applying a cascading test where a person with “control via other means” is only considered a beneficial owner (second step) when no one is identified as having a “controlling ownership” (first step)).

Thresholds should not be applied to the beneficial ownership definition for legal persons (just as it happens with legal ownership of companies and with beneficial ownership for trusts, where absolutely all shareholders and all parties to the trust must be identified, without any threshold). This means that any natural person who directly or indirectly holds one share, vote, interest or right to economic benefit in an entity should be registered as a beneficial owner. In addition,  there cannot be cases where an entity doesn’t have a beneficial owner (so a senior manager would never be identified as a beneficial owner). Many countries apply a beneficial ownership definition without thresholds, including Argentina, Botswana and Ecuador.

Although the “25 per cent” threshold is too easy to bypass by having an entity with more than four shareholders, in reality any threshold can be circumvented. For instance, a recent Al Jazeera investigation revealed an enabler hiding the beneficial owner of a football club by incorporating an investment fund where the investors/shareholders were 21 companies (so that all companies would have a shareholding below 5 per cent, which was the threshold to report ownership to the financial regulator). An investigation by Kroll into the Moldova Laundromat revealed the same strategy to acquire a bank, by holding interests of up to 4.99 per cent, to be below the 5 per cent threshold.

7)      Prohibition of bearer shares and warrants

Bearer shares should be prohibited. In a globalised and digital world, giving ownership to whoever holds a paper-share creates no benefit to society, but absolute secrecy. There is no reason why they should remain in existence, even if registered or immobilised. All pre-existing bearer shares should be converted into registered shares. In case of no-compliance, pre-existing bearer shares should be cancelled, losing all rights, without any chance to reinstate rights or obtain compensation (unlike the Swiss case).

Until full prohibition is established, countries which allow immobilisation should require a government authority (instead of a private party like a lawyer or bank) to immobilise the bearer shares.

Bearer warrants should also be prohibited, and financial instrument (eg call options, convertible debt, etc) should either be prohibited or disclosed as a beneficial owner (eg if John has convertible debt or a call option to acquire shares, he should be considered -and registered- a beneficial owner).

8)      Prohibition of nominee shareholders and directors

Nominee shareholders, aka fake shareholders, and nominee directors should be prohibited. In a world with perfect beneficial ownership transparency, nominee shareholders would become obsolete because everybody would know who the nominator (beneficial owner) is. The prevalence of nominee shareholders means that current beneficial ownership transparency hasn’t reached an acceptable level. Nominee shareholders should thus be prohibited to remove an additional obstacle to transparency.

Given that de facto nominees may still be employed despite the prohibition, countries should establish, in addition to civil and criminal penalties, that registered information has “constitutive effect” (meaning that rights start to exist upon registration) so that the nominee would be entitled to all the economic and political rights over an entity. The nominator (real beneficial owner) would have no rights at all. This would work as an incentive not to register incorrect or inaccurate information.

Nominee directors should also be prohibited because they are an abuse of law (if the law considers necessary to have a number of directors, it makes no sense to appoint a person who only rubber-stamps decisions or forwards correspondence). To enforce this prohibition countries should disregard any indemnity provision in favour of directors and consider that directors should be held responsible for the entities they manage or direct, without being able to claim that they were merely nominees.

9)      Public access

Public access to legal and beneficial ownership information should become the norm. Public access is available in EU countries, other European countries (eg the UK, Ukraine and the Western Balkans), as well as in countries in Africa (eg Ghana), Latin America (eg Ecuador) and Southeast Asia (eg Indonesia).

Given that legal vehicles give excessive benefits to their owners (eg limited liability, asset protection, possibility to hold assets and operate through the legal vehicle, etc), beneficial ownership transparency should be considered the minimum “consideration” (price) in exchange for creating legal vehicles and enjoy their benefits. Individuals who prefer not to have their names in public beneficial ownership registries should refrain from creating or owning legal vehicles, and should rather operate under their own name.

Public access is the best way to save resources for everyone. Those who need the information (local and foreign competent authorities, local and foreign obliged entities, etc) would have access to it without constraints. Those who hold the information would not need to spend time and resources to respond to requests for beneficial ownership information. Verification will be enhanced by increasing scrutiny by obliged entities, civil society organisations and investigative journalists.

Although some of the details may be restricted and available only to competent authorities, publicly accessible information should enable the determination of who a beneficial owner is (eg to determine if John Smith owning company A is the same John Smith owning company B) and the nature of such beneficial ownership (eg John is the beneficial owner because he has 100% of the votes).

Here are our proposed amendments to the Recommendation’s text (in italics and underlined is what the FATF is proposing to amend, and in bold is what we are proposing):

Recommendation 24. Transparency and beneficial ownership of legal persons vehicles, including legal persons and arrangements

Countries should assess the risks of take measures to prevent the misuse of legal persons for money laundering or terrorist financing, and take measures to prevent their misuse. Countries should ensure that there is adequate, accurate and timely up to date information on the beneficial ownership and control of legal persons that can be obtained or accessed rapidly and efficiently in a timely fashion by competent authorities through either a government register that holds of beneficial ownership information or an alternative mechanism. In particular, cCountries  that have legal persons that are able to should not permit legal persons to issue new bearer shares or bearer share warrants, and take measures to abolish prevent the misuse of existing bearer shares and bearer share warrants. Countries, or which allow nominee shareholders or nominee directors, should prohibit take effective measures to ensure that nominee shareholders and directors they are not misused for money laundering or terrorist financing. Countries should consider measures to facilitate public access to beneficial ownership and control information by financial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22 as well as by foreign authorities and other stakeholders (eg civil society organisations and investigative journalists).

Interpretive Note to Recommendation 24 (Transparency and Beneficial Ownership Of Legal Persons Vehicles, including legal persons and arrangements)

1.         Competent authorities should be able to obtain, or have access in a timely fashion to, adequate, accurate and current information on the beneficial ownership and control of companies and other legal persons (beneficial ownership information[1]) that are created[2] in the country, as well as those that have any present ML/TF risks and have sufficient links[3] with their country (if they are not created in the country). Countries may choose the mechanisms they rely on to achieve this objective, although they should also comply with the minimum requirements set out below. It is also very likely that cCountries will need toshould utilise a combination of mechanisms to achieve the objective.

2.         As part of the process described in paragraph 1 of ensuring that there is adequate transparency regarding legal persons, countries should have mechanisms that:

a)             identify and describe the different types, forms and basic features of legal persons in the country, publish statistics on the typical ownership and control structure of local legal persons, considering at least (i) number of layers, (ii) type of legal vehicle in each layer (eg company, trust, partnership, etc), (iii)nationality of layers, (iv) number of legal owners and beneficial owners and (v) their nationality and residence.

b)             identify and describe the processes for: (i) the creation of those legal persons; and (ii) the obtaining and recording of basic and beneficial ownership information;

c)              make the above information publicly available; and

d)             assess the money laundering and terrorist financing risks associated with different types of legal persons created in the country, and take appropriate steps to manage and mitigate the risks that they identify.

e)             assess the money laundering and terrorist financing risks associated with different types of foreign-created legal persons to which their country is exposed, and take appropriate steps to manage and mitigate the risks that they identify[4].

A. BASIC INFORMATION

3.         In order to determine who the beneficial owners of a company[5] are, competent authorities will require certain basic information about the company, which, at a minimum, would include information about the legal ownership and control structure of the company. This would include information about the status and powers of the company, its shareholders and its directors and the full ownership chain and control structure up to each beneficial owner.

4.         All legal persons (and arrangements) companies created in a country should be registered in a company registry[6] to have legal validity[7]. Whichever combination of mechanisms is used to obtain and record beneficial ownership information (see section B), there is a set of basic information on a company that needs to be obtained and recorded by the company[8] as a necessary prerequisite. The minimum basic information to be obtained and recorded by a company should be:

a)             company name, proof of incorporation, legal form and status, the address of the registered office, basic regulating powers (e.g. memorandum & articles of association), a list of directors, legal entity identifier (LEI) and unique identifier such as a tax identification number or equivalent (where this exists); and

b)             a register of its legal owners (shareholders or members or partners, or in the case of private foundations, all the parties including founder, member of foundation council, protectors, beneficiaries and any other individual with effective control over the private foundation), containing the names of the legal owners shareholders and members and number of interests shares held by each legal owner shareholder and categories of interests shares (including the nature of the associated voting rights).

5.         The company registry[9] should record all the basic information set out in paragraph 4(a) above.

6.         The company should maintain the basic information set out in paragraph 4(b) within the country, either at its registered office or at another location notified to the company registry. However, if the company or company registry holds beneficial ownership information within the country, then the register of shareholders need not be in the country, provided that the company can provide this information promptly on request.

B. BENEFICIAL OWNERSHIP INFORMATION

7.        Countries should follow a multi-pronged approach in order to ensure that the beneficial ownership of a company can be determined in a timely manner by a competent authority. Countries should decide, on the basis of risk, context and materiality, what form of registry or alternative mechanisms they will use to enable efficient access to information by competent authorities, and should document their decision. This should include the following:

a)      Countries should require companies to obtain and hold adequate, accurate and up-to-date information on the company’s own beneficial ownership and the full ownership chain and control structure up to each beneficial owner; to cooperate with competent authorities to the fullest extent possible in determining the beneficial owner, including making the information available to competent authorities in a timely manner; and to cooperate with financial institutions/DNFBPs to provide adequate, accurate and up-to-date information on the company’s beneficial ownership information.

b) (i)   Countries should require adequate, accurate and up-to-date information on the beneficial ownership of legal persons to be held by a public authority or body (for example a tax authority, FIU, companies registry, or beneficial ownership registry). If information need not be is not held by a single body, the country should implement a digital platform to centralise legal and beneficial ownership information (including the full ownership chain and control structure) of all legal persons only[10].

b) (ii) Countries may decide to use an alternative mechanism instead of (b)(i) if it also provides authorities with efficient access to adequate, accurate and up-to-date BO information. For these purposes reliance on basic information or existing information alone is insufficient, but there must be some specific mechanism that provides efficient access to the information.

c)      There should be no exemptions from beneficial ownership registration, unless the exact same information that is required to be registered is already available by another government authority, eg the stock exchange, central securities depository, etc. In such cases, the beneficial ownership register should contain a link or a duplication of the beneficial ownership information which is already available with the other government authority (eg the stock exchange).

Countries should use any additional supplementary measures that are necessary to ensure the beneficial ownership of a company can be determined; including for example information held by regulators or stock exchanges; or obtained by financial institutions and/or DNFBPs in accordance with Recommendations 10 and 22[11].

10.       All the persons, authorities and entities mentioned above, and the company itself (or its administrators, liquidators or other persons involved in the dissolution of the company), should maintain the information and records referred to for at least five years after the date on which the company is dissolved or otherwise ceases to exist, or five years after the date on which the company ceases to be a customer of the professional intermediary or the financial institution.

TIMELY ACCESS TO ADEQUATE, ACCURATE, AND UP-TO-DATE INFORMATION

11.       Countries should have mechanisms that ensure that basic information and beneficial ownership information (as well as the full ownership chain and control structure), including information provided to the company registry and any available information referred to in paragraphs 7, is adequate, accurate and up-to-date. Countries should require that is accurate and is kept as current and up-to-date as possible, and the information should be updated within a reasonable period following any change.

Adequate information is information that is sufficient to identify and determine the risk[12] of the natural person(s) who are the beneficial owner(s), and the means and mechanisms through which they exercise beneficial ownership or control. 

Accurate information is information which has been verified to confirm its accuracy by verifying the identity and status of the beneficial owner using reliable, independent source documents, data or information.  The extent of Enhanced verification measures may vary according to the specific level of risk.

Countries should consider complementary measures as necessary to support the accuracy of beneficial ownership information, e.g. discrepancy reporting, automated cross-checks against other databases, pre-filled forms, data validation mechanisms and requiring information to be verified by a liable obliged entity with physical presence in the country.

Up-to-date information is information which is as current and up-to-date as possible, and is updated within a reasonable period (e.g. within one month) following any change. Registered information should be considered to have “constitutive effect” where rights (to dividends, votes, etc) only exist for a legal or beneficial owner since registration.

12.       Competent authorities, and in particular law enforcement authorities, should have all the powers necessary to be able to obtain timely access to the basic and beneficial ownership information held by the relevant parties, including rapid and efficient access to information held or obtained by a public authority or body or other competent authority on basic and beneficial ownership information, and/or on the financial institutions or DNFBPs which hold this information. In addition, countries should ensure public authorities have timely access to basic and beneficial ownership information on legal persons in the course of public procurement.

13.       Countries should require their company registry to provide and/or facilitate timely access by financial institutions, DNFBPs and other countries’ competent authorities to the public information they hold, and, at a minimum, to the basic information referred to in paragraph 4 (a) above. Countries should also establish consider facilitating timely access by financial institutions and DNFBPs to information referred to in paragraph 4(b) above and to beneficial ownership information held pursuant to paragraph 7 above, as well as public access to these information legal and beneficial ownership information (which should include at least the full name, identifier, date and nature of beneficial ownership). Public access should be online, for free and in open data format.

D. OBSTACLES TO TRANSPARENCY

14.      Countries should take measures to prevent and mitigate the risk of the misuse of bearer shares and bearer share warrants, for example by prohibiting the issuance of new bearer shares and bearer share warrants[13]; and, abolishing for any existing bearer shares and bearer share warrants, by applying one or more of the following mechanisms within a reasonable timeframe[14]:

(a) prohibiting them

(a) converting them into a registered form; or

(b) immobilising them by requiring them to be held with a regulated financial institution or professional intermediary, with timely access to the information by the competent authorities; and [Immobilisiation, if it is to be kept, should only be allowed by a government authority, eg the Central Bank or Central Securities Depository.]

(c) During the period before (a) or (b) is completed, requiring holders of bearer instruments to notify the company, and the company to record their identity before any rights associated therewith can be exercised.

15.       Countries should take measures to prevent and mitigate the risk of the misuse of prohibit nominee shareholding and nominee directors. Examples to enforce this prohibition include:, for example by applying one or more of the following mechanisms[15]:

(a) applying the “constitutive effect” where registered legal owners or beneficial owners, even if proven to be de facto nominees, are to be considered the real owners of interests and rights to dividends or distributions, where the real (hidden) owner loses all rights over those interests, in addition to the civil, administrative and criminal consequences that apply against the nominee and nominator for violating the prohibition of nominee shareholdings requiring nominee shareholders and directors to disclose their nominee status and the identity of their nominator to the company and to any relevant registry, financial institution, or DNFBP which holds the company’s basic or beneficial ownership information, and for this information to be included in the relevant register as part of basic information; or

(b) considering nominee directors to be fully liable for the legal person’s actions, disregarding any indemnity provision or defence based on being a mere nominee requiring nominee shareholders and directors to be licensed[16], for their nominee status and the identity of their nominator to be recorded in company registries, and for them to maintain information identifying their nominator and the natural person on whose behalf the nominee is ultimately acting[17], and make this information available to the competent authorities upon request[18].

E. OTHER LEGAL PERSONS

16.       In relation to foundations, Anstalt, Waqf[19], limited partnerships and limited liability partnerships, countries should take similar measures and impose similar requirements, as those required for companies (including beneficial ownership registration), taking into account their different forms and structures.

17.       As regards other types of legal persons, countries should take into account the different forms and structures of those other legal persons, and the levels of money laundering and terrorist financing risks associated with each type of legal person, with a view to achieving appropriate levels of transparency. At a minimum, countries should ensure that similar types of basic information should be recorded and kept accurate and current by such legal persons, and that such information is accessible in a timely way by competent authorities. Countries should review the money laundering and terrorist financing risks associated with such other legal persons, and, based on the level of risk, determine the measures that should be taken to ensure that competent authorities have timely access to adequate, accurate and current beneficial ownership information for such legal persons.

E.  LIABILITY AND SANCTIONS

1.                 18.                 There should be a clearly stated responsibility to comply with the requirements in this Interpretive Note, as well as liability and effective, proportionate and dissuasive sanctions, as appropriate for any legal or natural person that fails to properly comply with the requirements. In addition to civil and criminal sanctions, the consequences for failing to register accurate or updated information must include:

a) for non-compliant legal persons: removal from the register and loss of legal existence (being prevented from owning assets or engaging in any transaction),

b)        for non-compliant beneficial owners: loss of all rights (dividends, voting rights and their interest in the legal person),

c)         for non-compliant legal owners who fail to identify their beneficial owners: loss of all rights (dividends, voting rights and their interest in the legal person),

G. INTERNATIONAL COOPERATION

19.       Countries should rapidly, constructively and effectively provide the widest possible range of international cooperation in relation to basic and beneficial ownership information held by public authority or body, on the basis set out in Recommendations 37 and 40. This should include (a) facilitating access by foreign competent authorities to basic information held by company registries; (b) exchanging information on shareholders; and (c) using their powers, in accordance with their domestic law, to obtain beneficial ownership information on behalf of foreign counterparts. Countries should monitor the quality of assistance they receive from other countries in response to requests for basic and beneficial ownership information or requests for assistance in locating beneficial owners residing abroad. Consistent with Recommendations 37 and 40, countries should not place unduly restrictive conditions on the exchange of information or assistance e.g., refuse a request on the grounds that it involves a fiscal, including tax, matters, bank secrecy, etc. Information held or obtained for the purpose of identifying beneficial ownership should be kept in a readily accessible manner in order to facilitate rapid, constructive and effective international cooperation. Countries should designate and make publicly known the agency(ies) responsible for responding to all international requests for BO information.

[1] Beneficial ownership information for legal persons is the information referred to in the Glossary and should cover all natural persons that have either ownership, control or benefit from a legal person, without applying thresholds. interpretive note to Recommendation 10, paragraph 5(b)(i). Controlling shareholders as referred to in, paragraph 5(b)(i) of the interpretive note to Recommendation 10 may be based on a threshold, e.g. any persons owning more than a certain percentage of the company (determined based on the jurisdiction’s assessment of risk, with a maximum of 25%).

[2] References to creating a legal person, include incorporation of companies or any other mechanism that is used. 

[3] Links should include at least: (i) holding registrable or valuable assets (eg real estate, cars, ships, aircrafts, art work, etc), (ii) having relations with an obliged entity (holding bank accounts, engaging with a lawyer, notary or accountant), (iii) having operations in the country (eg providing or acquiring goods or services, including free services such as social media, streaming or other digital services), (iv) having income or being considered tax resident or subject to tax, or (v) having a local participant who is resident in the country, participating either as a legal owner, beneficial owner, director, trust party, etc.

Countries may determine what is considered a sufficient link on the basis of risk. Examples of sufficiency tests may include, but are not limited to, when a company, on a non-occasional basis, owns a bank account, employs staff, owns real estate, invests in the stock market, owns a commercial/business insurance, or is a tax resident in the country.

[4] This could be done through national and/or supranational measures. These could include disregarding the legal effects of unregistered local or foreign entities, as well as prohibiting nationals and obliged entities from engaging with those unregistered local or foreign entities. requiring beneficial ownership information on some types of foreign-created legal persons to be held as set out under paragraph 7. [BO registration for linked foreign entities should be mandatory]

[5] Recommendation 24 applies to all forms of legal persons. The requirements are described primarily with reference to companies, but similar requirements should be applied to other types of legal person, taking into account their different forms and structures – as set out in Section E.

[6] “Company registry” refers to a register in the country of companies incorporated or licensed in that country and normally maintained by or for the incorporating authority. It does not refer to information held by or for the company itself.

[7] Unregistered legal persons and arrangements should be able to enjoy limited liability, hold assets under their name, enter into transactions with any party or engage with obliged entities.

[8] The information can be recorded by the company itself or by a third person under the company’s responsibility. 

[9] Or another public body in the case of a tax identification number.

[10] A body could record beneficial ownership information alongside other information (e.g. basic ownership and incorporation information, tax information), or the source of information could take the form of multiple registries (e.g. for provinces or districts, for sectors, or for specific types of legal person such as NPOs), or of a private body entrusted with this task by the public authority.

[11]   Countries should be able to determine in a timely manner whether a company has or controls an account with a financial institution within the country.

[12] Examples of information aimed at identifying the natural person(s) who are the beneficial owner(s) include the full name, nationality(ies), the full date and place of birth, residential address, national identification number and document type, and the tax identification number or equivalent in the country of residence. Additional details to determine the risk should include: other residencies and nationalities, PEP status, date since becoming a beneficial owner, value or nature of the transaction that allowed them to become a beneficial owner (eg acquiring 10% of the shares for a value of X).

[13] Or any other similar instruments without traceability such as financial instruments (eg call options, futures, etc).

[14] This requirement does not apply to bearer shares or bearer share warrants of a company listed on a stock exchange and subject to disclosure requirements (either by stock exchange rules or through law or enforceable means) which impose requirements to ensure adequate transparency of beneficial ownership.

[15] Countries may instead choose to prohibit the use of nominee shareholders or nominee directors. If so, the prohibition should be enforced.  

[16] A country need not impose a separate licensing or registration system with respect to natural or legal persons already licensed or registered as financial institutions or DNFBPs (as defined by the FATF Recommendations) within that country, which, under such license or registration, are permitted to perform nominee activities and which are already subject to the full range of applicable obligations under the FATF Recommendations.

[17]  Identifying the beneficial owner in situations where a nominee holds a controlling interest or otherwise exercises effective control requires establishing the identity of the natural person on whose behalf the nominee is ultimately, directly or indirectly, acting.

[18] For intermediaries involved in such nominee activities, reference should be made to R.22 and R.28 in fulfilling the relevant requirements.

[19] Except in countries where Waqf are legal arrangements under R.25.

The pitfalls of over-reliance on economics research in corporate tax policy

In rare cases when academic research attracts political attention, the results can be dramatic. An illuminating example of such an impact is an episode where a single review article became the chief justification for a drastic corporate tax rate cut with a direct budgetary impact of around 900 million euros. A close reading of the aforementioned article reveals caveats that undermined the anticipated policy goals of the reform. These caveats were not reflected upon in the public debate. The episode highlights the perils of relying on one branch of economics as a chief source of evidence in the design of tax policies.

The case study introduced below draws from our peer-reviewed article titled Conceptualizing Epistemic Power: The Changing Relationship Between Economic Policy Paradigms and Academic Disciplines, published at the Accounting, Economics and Law journal. It continues the debate instigated in a 2016 blog post that Nicholas Shaxson published in this blog under title Corporate tax cuts: why the old analyses don’t stack up any more (did they ever?), which drew from another blog post by Rasmus Corlin Christensen. At the heart of this discussion is a long-standing dilemma: can the negative budgetary impact of tax cuts be offset by an increase in economic activity? The case study also raises an important follow-up question: what forms of research are required to answer this question in different national settings?

Finland and the global financial crisis

Finding answers to these questions requires going back to early 2011. Finland had just adopted an unusually broad six-party government, with parties from left, right and the center of the political spectrum. The governmental program reflected the 1990s-style tax policy consensus, characterized by conceding to the gradual race to the bottom in corporate tax rates. The governmental program envisioned lowering the corporate tax rate by one percentage point to 25%. This promise was fulfilled (and even exceeded) in 2012, with a new tax rate of 24.5%.

If the story had ended there, it might just have been a typical example of the race to the bottom in corporate taxation. However, the government soon decided that the economic crisis necessitated further action. This paved the way to the drastic reform of 2014, which reduced the corporate tax rate from 24.5 to 20%. There was an urge to do something “big” to send a signal to the markets and to bolster Finland’s ‘competitive advantage’.

The case for the cut

The decision was politically contentious for a six-party government with deep ideological rifts. In the words of an insider, the tax cut “was an undesirable expense for the political left, and the smaller the cost, the easier it was to settle on the reform”. The static downward impact on tax revenues was estimated at around 900 million euros.

The preparatory stage of the reform was unusual in its reliance on the international economics literature, and in sidelining the  lawyer-dominated Tax Department of the Ministry of Finance (MoF). These two factors facilitated the entrance of the anticipated – and highly contested – dynamic effects of the tax cut in the political debate. In other words, the negative budgetary effect was expected to be mitigated through the resulting increase in employment and investment. To assess this impact, an idea emerged of conducting impact estimates on the behavioral effects of the tax cuts that would broaden the corporate tax base. The MoF tasked a state-funded economic research institute to conduct such study.

In an unprecedented move, the government projected that broadening the tax base would help to cover more than half (50–62%) of the annual revenue loss. The estimates relied on studies of tax elasticity of corporate tax reforms in the international economics literature. These impact estimates in turn relied on a dynamic, applied general equilibrium model, based upon a number of contentious assumptions. Impact estimates failed to specify a timeframe for the emergence of such dynamic effects. The chosen approach was highly controversial even within the MoF. High-ranking civil servants found meaningful short-term impact unlikely.

Several preparatory memos of the tax cut referred to a 2008 review article written by Ruud de Mooij and Sjef Ederveen, which happens to be the same piece of analysis discussed in the aforementioned blog posts by Shaxson and Christensen. The crux of the matter relates to the question of tax elasticity, which refers to the ways in which tax base reacts to the changes in tax rate. Advocates of tax cuts often argue that tax rate cuts tend to create or attract new economic activity. This is a questionable idea for the reasons we will discuss in detail below.

The power of a paper

After reviewing 427 studies, de Mooij and Ederveen suggested that when governments cut corporate taxation, the ensuing broadening of the tax base carries potential to offset part of the revenue loss. In the Finnish debate, this was interpreted to mean that a 4.5 percentage point drop in corporate tax rate would result in a self-financing rate of 62% through broadening the tax base. The article identified five sub-components for this effect: changes in the (1) the corporate legal forms; (2) the profit-shifting patterns of multinationals; (3) debt-capital ratios; (4) size of the existing foreign direct investment, and, (5) the amount of inward investments. The relative size of these components was estimated through a literature review.

Two-thirds of the dynamic effects were seen to result from the shifts of transboundary “hot money”, or, from changes in the legal form of existing economic activity. These effects are prone to react to corresponding changes in other jurisdictions. Moreover, the long-term effects of hot money on economic growth and employment are often meagre, as the governmental assessments also noted. Even the relationship between profit-shifting patterns and corporate tax rate is much more complex than anticipated. Profit-shifting is influenced by a variety of factors such as tax treaties and the capacities of tax authorities. Many commentators found the international estimates unreliable and questioned whether they could be meaningfully applied in the Finnish context. Yet, the contents of these sub-components were only vaguely debated in public, even though they involved highly controversial assumptions. Finally, as Christensen and Shaxson mention in their blog posts, the rapid changes that have upended global tax governance in the 2000s have also made earlier, historical statistical analyses of tax elasticity outdated.

It should also be noted that the de Mooij and Ederveen article saw the level of corporate tax rate as key variable in determining economic activity, which has been seen to reflect the contested idea of the Laffer curve. The article infers predictions on investment activity based on a pre-determined set of causal mechanisms that impact the cost of capital. However, empirical literature suggests that investment decisions are influenced by a myriad of reasons beyond tax rates, such as productive possibilities, market size, resources and the political and macroeconomic conditions. The type of investment most responsive to the level of corporate taxation seems to be highly mobile portfolio investment.

These uncertainties notwithstanding, this single article occupied a central role in governmental discussions on the budget framework. The article was important not only at the preparatory level, but also within the government. An expert with close knowledge of the negotiation process explains that the article was in:

“briefcases when the decision was made, it was reviewed and browsed during the process. […] If I need to name one study that was on the desks at the time, this was it”.

A cautionary tale

Resonating with the concerns we highlighted above, a lawyer whom we interviewed speculated that “perhaps there is a growing need to give policy proposals a seemingly scientific form to lend them credibility”. Hence, politicians “sometimes refrain from advancing reforms that might generate positive results according to practical knowledge of the issues at hand”. Politicians tend to favor quantitative assessments, even when they are highly uncertain.

The remarks of the interviewee quoted above are spot on. If the forms of knowledge production that guide decision-making favor abstract and formalist forms of economics research, important aspects may get sidelined. While econometric calculations can be useful in different stages of governmental preparatory work, they need to be balanced by a clear-headed understanding on the factors that drive corporations and investors and the underlying legal and accounting-level mechanisms. A sensitivity to national and historically specific contexts is of utmost importance when interpreting research.

Overall, this dramatic example of the international race to the bottom should serve as a warning sign for other countries. If it happens in a country that prides itself with endorsing evidence-based policy-making, other countries are likely vulnerable to similar turns in the narrowing understanding of evidence in policy-making.

In the international debate on corporate taxation, the OECD’s proposed introduction of a global minimum tax and a small sales-based apportionment mechanism is beset by controversy over the likely distribution of any benefits. In that context, the OECD has raised eyebrows by refusing to publish country-level estimates of the revenue impact – while multiple independent studies including from the International Monetary Fund suggest that many countries stand to lose out.

Meanwhile, the leading business lobby group has written to the OECD to demand greater involvement in the remaining process; and researchers at Oxford University have shown that the outstanding decisions in that process will effectively determine whether or not the minimum tax has a meaningful impact when introduced. The quality and transparency of evidence matters greatly.

Written with contribution by Jussi Jaakkola and Leevi Saari.

Tax Justice Network Portuguese podcast: UM RETRATO ASSOMBROSO DO ABUSO FISCAL #31

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business) produced by Grazielle David, Daniela Stefano and Luciano Máximo. All our podcasts are unique productions in five different languages – English, Spanish, Arabic, French, Portuguese. They’re all available here. Here’s the latest episode:

Enquanto países de baixa renda, como Angola, têm apenas 6% da população vacinada contra a covid-19, só com os US$ 483 bilhões do abuso fiscal de multinacionais e super-ricos em 2021 daria para vacinar o planeta inteiro mais de três vezes com duas doses. Ao não contribuírem com os impostos que deveriam, grandes corporações e pessoas super-ricas são responsáveis pelo agravamento das desigualdades no mundo.

Estudo elaborado pela Tax Justice Network, em parceria com a Global Alliance for Tax Justice e a Public Service International, revela “O Estado da Justiça Fiscal 2021”. Os principais achados deste relatório estão no episódio #31 do É da sua conta.

Participam dessa edição:

Roteiro/transcrição – É da sua conta #31

UM RETRATO ASSOMBROSO DO ABUSO FISCAL #31

O abuso fiscal tem tudo a ver com criação e manutenção de desigualdades nos planos internacional e doméstico e entre indivíduos ricos e indivíduos pobres. No plano doméstico ele acaba fazendo com que o imposto pago por pessoas ricas e corporações grandes seja muito inferior àquilo que é pago por pessoas mais pobres ou empresas menores. Isso fortalece e mantém a desigualdade dentro dos países.”

Florência Lorenzo, pesquisadora da Tax Justice Network.

Basicamente as multinacionais operam como empresas globais, mas as autoridades fiscais apenas tributam as subsidiárias em cada jurisdição. E isso dá a elas muita liberdade para realocar lucros para jurisdições de baixa tributação.”

Sol Piccioto, professor emérito da Universidade de Lancaster, na Inglaterra.

Temos realmente de lidar com a tributação e a regulamentação adequada das multinacionais para que elas não tenham essas vantagens injustas.”

Nick Shaxson, jornalista da Tax Justice Network.

Os membros do clube de países ricos decidem os padrões da fiscalização internacional, mas ao mesmo tempo são os responsáveis ou os culpados pela continuidade da evasão fiscal.”

Lucas Millán, pesquisador da Tax Justice Network.

O Reino Unido e outros países têm que melhorar sua regulação para fechar as lacunas que permitem esse abuso fiscal.”

Shanna Lima, pesquisadora da Tax Justice Network.

[Com abusos fiscais e recursos não declarados em paraísos fiscais] Os ricos sonegam imposto no país onde moram e alguém tem que pagar a conta desse cidadão. Sobra para os mais pobres.”

Clair Hickman, diretora do Instituto de Justiça Fiscal.

Na nossa visão, o ideal seria que qualquer financiamento público voltado pra área da saúde tenha condições específicas de que quando aquele conhecimento se traduzir em um produto, ele tem que ser acessível, não pode ficar sujeito a uma definição de preço sem nenhum tipo de critério. Isso não aconteceu agora na pandemia.”

Felipe Carvalho, coordenador no Brasil da campanha da Médico Sem Fronteiras

Os paraísos fiscais, onde as grandes corporações não são tributadas, implicam em redução de orçamento público para financiar direitos, para acabar com a fome.”

Valeria Torres Burity, secretária-geral da Fian Brasil

Temos uma crise em nossos países em torno da educação, da terra, da proteção social a quem está vulnerável e lutando. Esse tipo de coisa não pode ser resolvida pelo setor privado, precisa do governo, precisa do Estado para fazer sua parte.”

Irene Ovonji Odida, ActionAid e membro do Facti Panel da ONU

Mais informações:

O Estado Atual da Justiça Fiscal 2021

Pfizer, BioNTech e Moderna obtendo US$ 1.000 de lucro a cada segundo, enquanto países mais pobres do mundo permanecem não vacinados

É da sua conta é o podcast mensal em português da Tax Justice Network. Coordenação: Naomi Fowler. Produção e apresentação: Daniela Stefano, Grazielle David. Dublagem: Luiz Sobrinho e Camila Saraiva. Redes Sociais: Luciano Máximo. Download gratuito. Reprodução livre para rádios.

The Tax Justice Network’s French podcast: Avec 17,1 milliards $ de pertes fiscales, l’Afrique a manqué l’opportunité de vacciner 82% de ses 1,2 milliards d’habitants: Edition Spéciale

Welcome to our monthly podcast in French, Impôts et Justice Sociale with Idriss Linge of the Tax Justice Network. All our podcasts are unique productions in five different languages every month in English, Spanish, Arabic, French, Portuguese. They’re all available here and on most podcast apps. Here’s our latest episode:

Pour cette 34ème édition de votre podcast qui est consacrée au Rapport sur l’Etat de la Justice Fiscale dans le Monde publié conjointement par Tax Justice Network, Public Service International et Global Alliance for Tax Justice, nous revenons sur les chiffres et les grilles de lecture qu’on peut avoir sur la situation en Afrique. Il s’agit notamment de l’implication pour les femmes, des opportunités en termes de création d’emplois pour les jeunes. Nous avons aussi écouté les avis de l’homme de la rue.

Interviennent dans ce programme:

Avec 17,1 milliards $ de pertes fiscales, l’Afrique a manqué l’opportunité de vacciner 82% de ses 1,2 milliards d’habitants: Edition Spéciale

Vous pouvez suivre le Podcast sur:

[Image: “Broadcast Tower” by Steven Beger Photography (Beger.com Productions) is licensed under CC BY-SA 2.0]

Tax Haven Ireland: the Tax Justice Network podcast, November 2021

Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app. In this episode:

Featuring:

Tax Haven Ireland

We want to bring the true nature of Irish capitalism and the true nature of the Irish establishment into the light – effectively, the failure of Irish capitalism. At the centre of the whole thing was an enormous tax haven and it just became more and more clear to us, especially when we started to look at the official statistics, that there was an enormous story to be told. We need to expose what is an awful system in terms of human development.”

~ Brian O Boyle, Tax Haven Ireland author

It’s a fool’s game, I mean this is a model of development that’s promoted across the world, you know, set up an export processing zone, set up a financial services centre. But as every country’s doing that, there’s a sort of race to the bottom where you have to offer some even more tax incentives, more deregulation. And ultimately it’s a loser’s game.”

~ Kieran Allen, Tax Haven Ireland author

One of the things we hear quite often is sort of this framing of UN versus OECD, which I always find quite strange in terms of framing because the UN tax body and convention isn’t about stopping limited membership bodies from the work that they’re doing, it is simply about establishing a principled process of global negotiations on tax that is inclusive, transparent, and centred around commitments to human rights and gender equality.”

~ Pooja Rangaprasad, Director, Policy and Advocacy, Financing for Development, Society for International Development

In some ways you can read it [the State of Tax Justice report 2021] as a counsel of despair. You know, we find this year that the member countries of the OECD, the richest and most powerful countries in the world are responsible for more than three quarters of the tax losses imposed globally. And this is the body that the G20 has mandated to find the solution to the international tax problems we face. But we shouldn’t feel disheartened. We brought forward with the global movement for tax justice a set of policy proposals. One of them is to move away from the OECD and towards an intergovernmental body to set tax rules in a genuinely inclusive way under the auspices of the United Nations. It kicked the doors open to the idea. I hope the G77 feel the very strong support of the movement.”

~ Alex Cobham, Tax Justice Network

Further Reading:

[Image credit “Colors on the River Liffy” by Let Ideas Compete is licensed under CC BY-NC-ND 2.0]

‘Power concedes nothing without a demand:’ the OECD, the G77 and a UN framework convention on tax proposal

With the OECD tax reforms having lost most of their original ambition, and the remaining benefits captured almost entirely by a few larger OECD members, attention is switching to the search for alternatives. In October, the G77 – by far the largest of all the ‘G’ country groups – once again tabled at the UN its proposal for an intergovernmental tax body under UN auspices.

This idea, also long supported by the global tax justice movement, would not, of course, guarantee progress. It would however see tax negotiations take place in a globally inclusive setting, and with much greater transparency. Importantly too, it would move decisions away from the OECD which – despite the secretariat’s undoubted desire for progress – is inevitably led by its major members. And as we’ve made clear so often, the OECD’s founding members are demonstrably responsible for the clear majority of global tax abuse. Its own members also lose the greatest amounts in absolute terms, but lower-income countries lose much larger shares of their current tax revenues – with terrible implications for human rights.

It is beyond foolish to expect the OECD to be able to bring forward proposals to curb that tax abuse, or to distribute any benefits in a way that reduce the global inequalities in taxing rights faced by non-members.

But it would be equally foolish to just hope that the OECD or its major members might cede their dominance. As the US social reformer Frederick Douglass famously said, ‘Power concedes nothing without a demand.’ The G77 has now made that demand. The immediate response has been rejection. The rich countries demanded immediately that the proposal for an intergovernmental body be dropped from the text, and so it has been – for now. More extreme, these same countries refused to support the paragraph of the revised text which merely ‘noted’ the FACTI Panel – a crucial initiative whose final report lays out the necessary changes in the global architecture, including, naturally an intergovernmental tax body – and requests that the UN Secretary-General provides a report on illicit financial flows.

Frederick Douglass went on to say: ‘Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them.’

There seems to be a desire from the UK, effectively the largest single actor in illicit financial flows, and some other rich countries, to test exactly that boundary with regard to international tax abuse.

But the momentum is building. A key element is the growing attention to the potential specifics of an intergovernmental tax body, and we are honoured to republish here the work of Professor Sol Picciotto, coordinator of the BEPS Monitoring Group and a senior adviser to the Tax Justice Network, and Abdul Muheet Chowdhary, Senior Programme Officer at the South Centre Tax Initiative.

Their proposal for a UN framework convention on tax as the basis to establish an intergovernmental forum is a major contribution to the debate. Read their blog and report Streamlining the Architecture of International Tax through a UN Framework Convention on Tax Cooperation here.

[Image credit: “The Mountain Tops” by Jocey K is licensed under CC BY-SA 2.0]

Losses to OECD tax havens could vaccinate global population three times over, study reveals

Poorer countries hit hardest by global tax abuse at the hands of rich countries

Countries are losing a total of $483 billion in tax a year to global tax abuse committed by multinational corporations and wealthy individuals – enough to fully vaccinate the global population against Covid-19 more than three times over.1 The 2021 edition of the State of Tax Justice documents how a small club of rich countries with de facto control over global tax rules is responsible for the majority of tax losses suffered by the rest of the world, with lower income countries hit the hardest by global tax abuse. The findings are further galvanising calls to move rule-making on international tax from the OECD to the UN.

The State of Tax Justice 2021 – published by the Tax Justice Network, the Global Alliance for Tax Justice and the global union federation Public Services International – reports that of the $483 billion in tax that countries lose a year, $312 billion is lost to cross-border corporate tax abuse by multinational corporations and $171 billion is lost to offshore tax evasion by wealthy individuals.

The $483 billion loss consists of only direct tax losses: that is, tax losses that can be observed from analysing data self-reported by multinational corporations and from banking data collected by governments.2 Uncounted in this estimate are the indirect losses: the chain-reaction losses that arise from tax abuses accelerating the race to the bottom and driving tax rates down globally. The IMF estimates that indirect losses from global tax abuse by multinational corporations are at least three times larger than direct losses.3 No equivalent estimate exists for the indirect losses of offshore tax evasion.

Tax Justice Network data scientist Miroslav Palanský said, “The $483 billion lost to tax havens a year is the tip of the iceberg. It’s what we can see above the surface thanks to some recent progress on tax transparency, but we know there’s a lot more tax abuse below the surface costing magnitudes more in tax losses.”

“The $483 billion lost to tax havens a year is the tip of the iceberg.”

OECD countries, not palm-fringed islands, enable most of global tax abuse

Over 99 per cent of global tax losses countries suffer result from multinational corporations and wealthy individuals utilising abusive tax regulations and loopholes in higher income countries.

The lion’s share of blame among higher income countries falls on members of the OECD (Organisation for Economic Cooperation and Development), a small club of rich countries and the world’s leading rule-maker on international tax. Despite commitments by OECD members on curbing global tax abuse, OECD members were found to be responsible for facilitating 78 per cent of the tax losses countries suffer a year. OECD members facilitate the handing over of $378 billion a year from public purses around the world to the wealthiest multinational corporations and individuals.

The worst culprit among OECD members is the UK, which is responsible for over a third (39 per cent) of the world’s tax loss. The UK is by far the world’s greatest enabler of global tax abuse, which it facilitates through a network made up of British Overseas Territories like the Cayman Islands, Crown Dependencies like Jersey and the City of London. Known as the UK spider’s web4, the UK government has full powers to impose or veto law-making in these territories and dependencies and key government positions in these jurisdictions are appointed by the Queen.

The UK spider’s web, together with OECD members Netherlands, Luxembourg and Switzerland are responsible for over half of the tax losses the world suffers (55 per cent), which is why the countries are often collectively referred to as the “axis of tax avoidance”. The axis of tax avoidance cost the world over $268 billion in tax losses a year, equivalent to more than 18 times the amount of money expected to have been spent globally on facemasks in 2020 and 2021.5

The huge role the axis of tax avoidance plays in facilitating global tax abuse means that many OECD members are also among the heaviest losers, in absolute terms. France, for example, cost other countries over $4.6 billion in tax losses a year, but lost over $41 billion a year itself. Even in countries responsible for the most extreme levels of abuse, few citizens enjoy any benefits as almost all the tax losses their governments enable are pocketed by wealthy multinational corporations and individuals. Citizens of these countries typically face higher inequalities, a greater threat of corruption of their political systems and the documented consequences of the “finance curse” phenomenon.6 Reigning in OECD members’ tax havenry would generate major benefits to people living in both OECD and non-OECD member countries.

Despite the huge tax loss suffering imposed by these countries, no OECD member nor any axis of tax avoidance country appears on the EU tax haven blacklist.7 The handful of mostly small island nations blacklisted by the EU are responsible for 1.1 per cent of global tax abuse.

Rich countries’ vaccine pledges mask plunder of poorer countries taxes

Global tax abuse enabled by rich countries is hitting poorer countries the hardest. While higher income countries lose more tax in absolute terms, $443 billion a year, their tax losses represent a smaller share of their revenues - 9.7 per cent of their collective public health budgets. Lower income countries in comparison lose less tax in absolute terms, $39.7 billion a year, but their losses account for a much higher share of their current tax revenues and spending.

Collectively, lower income countries lose the equivalent of nearly half (48 per cent) of their public health budgets – and unlike OECD members, they have little or no say on the international rules that continue to allow these abuses.

The $483 billion lost to tax havens a year is enough to cover the cost of purchasing and delivering two Covid-19 vaccine doses for the global population three times over.8 This is equivalent to vaccinating 1000 people against Covid-19 every second. The taxes that lower income countries lose to tax havens in a year would be enough to vaccinate 60 per cent of their populations, bridging the gap in vaccination rates between lower income and higher income countries. With their vaccination rates far lower, global tax abuse deals a double blow to lower income countries by robbing them of the funding to protect their populations against Covid-19 and, consequentially, exposing them to an even greater human and economic toll.

Analysis for the State of Tax Justice 2021 reveals that for every $1 OECD countries pledged to the COVAX programme, a worldwide initiative established to address vaccine inequity, they cost the rest of the world $43 in lost tax by facilitating global tax abuse. Altogether, OECD countries pledged $8.7 billion to the COVAX programme but cost the world $378 billion in lost tax.9 If OECD countries had not pledged any money to COVAX but simply stopped facilitating global tax abuse instead, countries around the world could have collected enough tax revenue to vaccinate the global population against the Covid-19 virus 2.9 times over.

Dr Dereje Alemayehu, executive coordinator of the Global Alliance for Tax Justice said:

“The richest countries, much like their colonial forebearers, have appointed themselves as the only ones capable of governing on international tax, draped themselves in the robes of saviours and set loose the wealthy and powerful to bleed the poorest countries dry. To tackle global inequality, we must tackle the inequality in power over global tax rules. Rules on where and how multinational corporations and the superrich pay tax must be set at the UN in the daylight of democracy, not by a small club of rich countries behind closed doors.”

Urgency grows for UN to step in

Calls for shifting the responsibility of setting tax rules away from the OECD to the UN gained unprecedented traction this year when the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI) called for a comprehensive overhaul of the global architecture. The FACTI Panel’s key recommendations draw closely on the work of the tax justice movement, and include the establishment of a UN tax convention, a Centre for Monitoring Taxing Rights at the UN to raise national accountability for illicit financial flows and tax abuse suffered by others, and a globally inclusive, intergovernmental UN forum for the urgent negotiation of further changes to the international tax rules.10

The proposal follows years of criticism11 levied against the OECD for its failure to deliver meaningful change in its long-awaited tax reform proposals, and the hypocrisy of its members inflicting huge tax losses on others. The OECD’s latest global tax deal, which includes a global minimum tax rate, similarly came under fire this year for acquiescing to tax haven members like Ireland.12 The tax deal is expected to recover only a sliver of tax revenues lost to tax havens and will redistribute most recovered taxes to rich OECD members instead of the countries where the taxes should have originally been paid.

Alex Cobham, chief executive at the Tax Justice Network said:

“Another year of the pandemic, and another half trillion dollars snatched by the wealthiest multinational corporations and individuals from public purses around the world. Tax can be our most powerful tool for tackling inequality, but instead it’s been made entirely optional for the superrich. We must reprogramme the global tax system to protect people’s wellbeing and livelihoods over the desires of the wealthiest, or the cruel inequalities exposed by the pandemic will be locked in for good. The State of Tax Justice tells us exactly which countries are responsible for the tax abuse we all suffer. It’s time they were held accountable.”

Taxes on wealth and excess profit

In addition to calling for a UN role on global tax, the State of Tax Justice also recommends the introduction of an excess profit tax and wealth tax. The report calls on governments to:

Rosa Pavanelli, general secretary at Public Services International, said:

“Many corporate and political leaders applaud our frontline workers in public; yet in private, they undermine frontline services by continuing to perpetuate tax abuse on a repulsive scale. Ending tax dodging would pay for 1000 people to be fully vaccinated every single second; we could fully vaccinate the world's 135 million health and care workers in just a day and a half. The only way out of this crisis is to end vaccine inequality, and that requires both waiving patents and cracking down on corporate tax dodging, which pulls money away from our frontline health services and into their offshore bank accounts."

-ENDs-

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Featured image credit: "COVID-19 emergency response activities, Madartek, Basabo, Dhaka" by UN Women Asia & the Pacific/Fahad Abdullah Kaizer is licensed under CC BY-NC-ND 2.0

Notes to Editor:

  1. For the purposes of demonstrating the impact of tax abuse on vaccine affordability and equity, we estimate that cost of acquiring and delivering full vaccination dosage falls within the range of $9.70 to $17.20 per person. This range is based on the People’s Vaccine Alliance data on the accepted cost per dose of the Pfizer, Oxford/AstraZeneca and Johnson & Johnson vaccines, which range from $3 to $10, and the WHO’s estimates on the delivery and infrastructure cost of administrating full dosage, which is $3.70 per person. At a range of $9.70 to $17.20, the $483 billion annually underpaid by multinational corporations and wealthy individuals is enough to fully vaccinate the global population between three and six times over. The State of Tax Justice 2021 uses the highest price range, $17.20, in its calculation of vaccinations lost per country and globally. For more information, see Chapter 1 in the State of Tax Justice 2021 report.
  2. Estimates of global tax abuse by multinational corporations is based on country by country reporting data collected by governments and published by the OECD. Country by country reporting is and international accounting standard designed to expose and deter profit shifting, a practice that involves multinational corporations moving profits from the countries where they were generated to tax havens, where corporate tax rates are low to non-existent, in order to underreport how much profit they made outside of tax havens and consequently pay less corporate tax.

    Country by country reporting was first proposed by the Tax Justice Network in 2003. Although initially resisted by the OECD the reporting method was eventually backed by the G20 group of countries in 2013, with the OECD producing a standard for use from 2015. After numerous delays, the OECD finally published partial data in July 2020. However, while the Tax Justice Network’s proposal called for multinational corporations to publicly disclose their country by country reports, the OECD required multinationals only to privately submit their reports to OECD countries’ tax authorities. Reports collected from multinational corporations were then aggregated and anonymised by OECD countries before the data was shared with the OECD body and published. As a result, while the Tax Justice Network’s analysis of the data published by the OECD shows that multinational corporations are paying $312 billion less in corporate tax than they should, it is not possible to identify which multinational corporations are responsible.

    Estimates on offshore tax evasion by individuals are based on banking data collected by governments.
  3. The International Monetary Fund estimates that, at a global level, indirect losses from global corporate tax abuse are at least three times larger than direct losses. If we were to adjust the State of Tax Justice 2021’s estimate of direct tax losses accordingly, we would see overall losses well beyond $1 trillion. While this extrapolation could be considered at a global level, it is not possible to multiply countries’ individual direct losses by the IMF’s global factor since the complex nature of global tax havenry and the varied movement of profit between jurisdictions imply greater levels of indirect losses for some countries and lower levels for others.
  4. Extensive research has documented the ways in which the UK’s network of jurisdictions operates as a web of tax havens facilitating corporate and private tax abuse, at the centre of which sits the City of London. The UK spider’s web consists of the following British Overseas Territories and Crown Dependencies: Cayman Islands, British Virgin Islands, Guernsey, Jersey, Gibraltar, Bermuda, Isle of Man, Anguilla, Turks and Caicos Islands and Montserrat. For more information about the UK spider’s web, please see Michael Oswald’s documentary “The Spider’s Web: Britain’s Second Empire”, produced by Tax Justice Network founder John Christensen. The documentary is available on YouTube in English, Spanish, French, German and Italian and has been viewed nearly 5 million times.
  5. The Global Face Mask Market size was estimated at USD 6,867.82 million in 2020, and expected to reach USD 7,808.64 million in 2021.
  6. The finance curse identifies a paradox at the heart of financial sectors: “too much finance” can make a country poorer. More information is available here.
  7. The EU blacklist, last updated on 5 October 2021, is composed of: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu. Collectively, the jurisdictions facilitated 0.51 per cent of global tax abuse, costing the world $2.47 billion in lost tax a year.
  8. See note 1
  9. A breakdown of COVAX donors is available here.
  10. More information on the UN FACTI panel is available here.
  11. See The Nation article.
  12. See Tax Justice Network op-ed here.

About the Tax Justice Network

The Tax Justice Network believes our tax and financial systems are our most powerful tools for creating a just society that gives equal weight to the needs of everyone. But under pressure from corporate giants and the super-rich, our governments have programmed these systems to prioritise the wealthiest over everybody else, wiring financial secrecy and tax havens into the core of our global economy. This fuels inequality, fosters corruption and undermines democracy. We work to repair these injustices by inspiring and equipping people and governments to reprogramme their tax and financial systems.

About Public Services International

Public Services International is a Global Union Federation of more than 700 trade unions representing 30 million workers in 154 countries. We bring their voices to the UN, ILO, WHO and other regional and global organisations. We defend trade union and workers’ rights and fight for universal access to quality public services.

About the Global Alliance for Tax Justice

The Global Alliance for Tax Justice is a global coalition of the tax justice movement, campaigning for progressive and redistributive taxation systems at the national level, and for a transparent, inclusive and representative global tax governance at the international level.

Created in 2013, GATJ comprises regional tax justice networks in Asia (Tax & Fiscal Justice Asia), Africa (Tax Justice Network Africa), Latin America (Red de Justicia Fiscal de América Latina y el Caribe), Europe (Tax Justice-Europe) and North America (Canadians for Tax Fairness & FACT Coalition), collectively representing hundreds of organisations.