Data havens: how to tackle the new digital race to the bottom

Britain’s Times Newspaper is carrying a story entitled Errors in The Crown may prompt tighter rules for streaming services. The issue at hand, apparently, is that the Netflix series The Crown isn’t sticking closely enough to historical facts, and showing the Royal Family in a poor light. 

Quelle horreur!

But what’s of interest to us here at the Tax Justice Network is that this is the latest sign of a race to the bottom among jurisdictions when it comes to investigation and enforcement of abuses. As the article states:

“Streaming platforms such as Netflix and Amazon Prime Video are covered by a weaker EU-wide regime, known as the audio visual media services directive. Netflix is registered with the Commissariaat voor de Media, a little-known Dutch regulator, which as of last year had not investigated a single complaint from a British viewer about the streaming service.”

We don’t care much whether or not The Crown, a drama, sticks to historical facts. But we do care that complaints get taken seriously. 

The Netherlands is at No. 4 in our Corporate Tax Haven Index — meaning, in effect, that it is the world’s fourth most damaging tax haven. And as we shall see, it is no coincidence that a damaging tax haven should also be super-lax on regulating audio-visual services like Netflix. A privacy expert told TJN, via an email on this subject:

“Being a tax or data haven is wanting to profit from allowing others to behave questionably and promising to turn a blind eye.”

Internet services are another case in point. Giant monopolising platforms like Facebook or Google fall under Europe’s General Data Protection Regulation (GDPR). Lax regulation of data sharing has contributed to all manner of abuses, from climate crimes to fake news to genocide

We noted this privacy-related race to the bottom between European countries last year, in a major post on the links between tax havens and monopolies. 

The specific problem here involves what is called, in EU jargon, the “Lead Supervisory Authority” for the internet giants, which is the jurisdiction where the Facebooks of this world decide to put their European HQs for tax and regulatory purposes — this will be the country that co-ordinates investigations into abuses across Europe. Obviously — obviously — this approach of letting large global platforms go jurisdiction-shopping to find the friendliest data supervisor and enforcer is likely to lead to a race to the bottom, as jurisdictions try to outdo each other in laxity, to capture the giants’ business. 

A report from Access Now, a group that protects people’s digital rights, provides new evidence on lax supervision of online content — and highlights jurisdictions whose identities will surprise nobody who is familiar with corporate tax havens. 

Ireland and Luxembourg, which are the main authorities dealing with the cases involving Amazon, Facebook, WhatsApp, Twitter, PayPal, Instagram, Microsoft, Google, and others, have issued zero fines against the tech giants to date. In the meantime, in 2018 and 2019, the Irish authoritiy received a total of 11,328 complaints.”

In fact, Ireland has now just imposed a fine (against Twitter) for failing to notify regulators after a data breach. This may sound like progress — but it isn’t. Under the GDPR Ireland could have fined Twitter two percent of its $3.5bn global annual revenue, or around US$70 million (nearly €60m) according to our calculations. In the event, the Irish regulator took two years to levy the fine and came up with . . . $450,000. Ian Brown, an authority on internet regulation, described the fine as “an embarrassment… the Irish data protection commissioner is notoriously lax.” And, as one article on the fine put it:

“The Irish regulator originally wanted to fine Twitter even less than this, but through the dispute-resolution process, it was told to increase the amount.”

Brown told TJN that the Irish data regulator:

“just do not remotely have the resources they need to employ enough staff — including highly expert staff who understand the technology — or the political will to really make use of their enforcement powers.”

Ireland is, alongside its data haven role, another of the world’s largest — and sleaziest — corporate income tax havens, bowing down to rootless global capital by offering tax loopholes such as those that allowed Apple to set up companies that existed, in effect, nowhere. This game has undercut other countries’s tax systems and has not even benefited the broad population of Ireland. Luxembourg, at number 6 on the CTHI, also engages heavily in the data haven game, particularly through its hosting of Amazon.

Access Now summarises the problem:

Large tech companies have nearly endless financial resources in comparison to the restrictive budget allocated to Data Protection Authorities. In the case of Ireland, the revenue of some of these companies is even higher than the Gross Domestic Product of the country.

There is more bad news — alongside some potentially good news.

On the worrying side, Britain, which hitherto has successfully levied some meaningful fines against large companies for GDPR abuses, now faces Brexit, its departure from the European Union. A recent article by Carissa Veliz in The Guardian quotes the UK’s digital secretary as saying that:

“Data and data use are seen as opportunities to be embraced, rather than threats against which to be guarded.”

That is indeed worrying. And the article continues:

“The UK could develop into a data haven, in the way some countries are tax havens. A data haven would be a country involved in “data washing”, being willing to host data acquired in unlawful ways (eg without proper consent or safeguards) that is then recycled into apparently respectable products.

(Data washing) would involve the UK allowing companies and governments the world over to do their dirty data work under its protection in exchange for money. [This] could turn into a privacy catastrophe.”

This is a realistic fear: there are powerful interests in the UK pushing for the UK, once out of the EU, to engage in tax-cutting and deregulation to attract capital, and data havenry.  (That’s another can of worms.)

But now, for some potentially very good news.

There is a straightforward solution to this, at least to the race-to-the-bottom element of it. And that is to do away with the “lead supervisory authority” system that allows giant companies to shop for the friendliest supervisor. Instead, supervision and enforcement should be centralised at a European level. 

The European Commission has just published its proposals for a Digital Markets Act (and Digital Services Act,) a broad, sweeping set of proposed legislation to deal with the digital economy in there.  And we find, in the DMA proposals, this:

The Commission examined different policy options . . . All options envisaged implementation, supervision and enforcement at the EU level by the Commission as the competent regulatory body. Given the pan-European reach of the targeted companies, a decentralised enforcement model does not seem to be a conceivable alternative, including in light of the risk of regulatory fragmentation
. . . 
the functioning of the internal market will be improved through clear behavioural rules that give all stakeholders legal clarity and through an EU-wide intervention framework allowing to address effectively harmful practices in a timely and effective manner.
[our emphasis]

This, potentially, is huge — and worthy of support: these are still just proposals, which need to pass through the EU sausage machine before they harden into law, perhaps a year or two hence. 

The tax justice movement must now join forces with digital rights groups and others, to protect this crucial aspect of regulation in the digital age. This is the kind of cross-silo movement-building of “fusion coalitions” which, history suggests, can be the most effective of all.

Big Tobacco, big tax abuse

We recently covered the global Cigarette Tax Scorecard, published by Tobacconomics, which assesses the extent to which countries’ tax policies are up to the job of curbing the public health costs of tobacco. Now we look at a new report on the tax behaviour of the tobacco companies. The University of Bath’s Tobacco Control Research Group, which tweets at @BathTR, is a world leader in critical analysis of the harms done by tobacco. We’re delighted to post this blog by the group’s Dr J Robert Branston and Andy Rowell, on a major new study conducted with The Investigative Desk, into the international tax abuse practices of the big tobacco companies. The full report is available to download, as is the Tax Justice Network’s earlier study on this subject, Ashes to Ashes.


Guest blog by Dr J Robert Branston and Andy Rowell

There are often stories in the media about large tech companies not paying much corporation tax despite their business generating massive earnings.  Companies such as Facebook and Google are often cited as examples of companies who use clever corporate structures to avoid paying tax at the levels their revenues might imply.  It is therefore very welcome that HM Revenue & Customs, the UK tax and customs authority, has recently moved to crackdown on such schemes. As part of this push to hold companies account, they would do well to start by looking at the tobacco industry.

It is widely known that tobacco companies are immensely profitable, but a lot less is known about how the industry structures their commercial activities to pay far less tax than they should on these profits. The Investigative Desk, working with the University of Bath, have been starting to figure out what they are doing.

The analysis of group annual reports and accounts for the period 2010-2019, including of a number of crucial subsidiaries, shows that all of ‘Tobacco’s Big Four’ transnational companies – British American Tobacco, Imperial Brands, Japan Tobacco, and Philip Morris International – have ‘aggressive tax planning’ strategies, in spite of their own codes of conduct suggesting otherwise.

It is clear that all four make extensive use of the entire range of common corporate tax abuse methods. This includes shifting dividends through low tax countries, utilising notional interest payments on inter-subsidiary loans, making royalty payments to other subsidiaries, and offsetting profits in one subsidiary against losses elsewhere, all of which reduce profits on paper and hence their tax bills.

Six European countries play a key role in the elaborate corporate tax abuse strategies of Tobacco’s Big Four because of the tax rules in each of the countries: Belgium, Ireland, Luxemburg, the Netherlands, the UK, and Switzerland. For instance, on average, Tobacco’s Big Four shift around €7.5 billion of worldwide profits through the Netherlands annually. While in the UK, the local subsidiaries of Imperial Brands (IB) and British American Tobacco (BAT) – groups based and headquartered in the UK – were able to lower their UK corporate tax burden by £2.5 billion between 2010 and 2019. As a result, BAT paid close to zero corporation tax over this period. IB’s annual reports are so untransparent that their actual UK tax burden is virtually impossible to determine.

One telling illustration of the lengths the industry goes to avoid paying tax on their profits is from BAT’s operations in South Korea. All BAT cigarettes produced by local subsidiary BAT Korea Manufacturing Ltd (South Korea) are sold – on paper – to Rothmans Far East BV, a BAT subsidiary in the Netherlands. They are then immediately re-sold to a different BAT subsidiary back in Korea, BAT Korea Ltd, at a much higher price. This way, on average each year, €98 million in Korean profits are shifted to the Netherlands where the tax regime is more favourable.  

All countries, most especially the six mentioned above, need to crack down on these corporate tax abuse measures. A number of countries are already trying to do just that, with the industry engaged in tax disputes in at least 11 countries over the last ten years, with claims ranging from €45 million to €1.2 billion. So far, in the majority of cases, the courts’ decisions have been in favour of the companies. This shows that changes to tax laws are desperately needed so that tobacco companies can’t circumvent their tax obligations with the use of complex loopholes.   

Since the tobacco industry profits enormously from a product that kills at least half of its long-term users, tobacco companies need to pay their fair share in line with the spirit, as well as the letter, of the law.  With many governments facing huge COVID-19 related expenses, the time has never been better to hold the industry to account in this way.

The TCRG is supported by Bloomberg Philanthropies, which had no influence on the research for the report, or blog.

Taxing Wall Street: the Tax Justice Network December 2020 podcast

In this episode of the Tax Justice Network’s monthly podcast, the Taxcast:

This month we take a look at the transformative power of financial transactions taxes. There’s a chance that New York, home to two of the world’s largest stock exchanges, could be about to set an important precedent. We go to Kenya to look at its experience with a financial transactions tax. And we see how much further the tax could go.

Plus: we discuss three major waves of change in 2020: the black lives matter protests, Trump’s departure from the Whitehouse and the end of the Brexiteers dream. (Subscribe to the Taxcast via email by contacting the Taxcast producer on naomi [at] taxjustice.net)

Transcript available here (some is automated and may not be 100% accurate)

Featuring:

Want to download and listen on the go? Download onto your phone or hand held device by clicking here.

“It’s interesting that you know, now the gospel is spreading from Africa to the more developed world that have been overtaken by the likes of Kenya and Tanzania and South Africa in implementing a robin hood tax.”

~ Economist Francis Karugu

A Financial Transactions Tax is “a brilliant, easily collected tax. It doesn’t cause any pain to investors. I mean there are damn few alternatives. Do you want us to really just fire all the state workers shutting down schools and laying off teachers, you know, how do you get Wall Street to pay its fair share here?!”

~ Economist, lawyer and senior Tax Justice Network advisor Jim Henry

The value of global capital flowing through financial markets is actually 28 trillion pounds per day. if we just charge a 0.05% tax rate, we’re looking at 14 billion pounds per day to fund reparations and systems change.”

~ Economist Keval Bharadia

The Brexiteer project was to break the European Union’s resolve, to break the whole project of trying to create an international rules-based trading order, in other words, to create a kind of globalisation where there were no rules, no frameworks for cooperation. And that project has failed.

~ John Christensen, Tax Justice Network

Further Reading:

Congress passes defense bill with big ramifications for AML, whistleblowers

You can read Keval Bharadia’s paper “Recalibrating financial transaction tax policy narratives” here. You can look at his slides on Recalibrating financial transactions tax policy narratives for reparations here.

You can read about the efforts towards a financial transactions tax in New York here.

The Tax Justice Network’s Financial secrecy Index is available here

Africa’s battle against financial secrecy is here.

You can listen to the Tax Justice Network’s Rachel Etter-Phoya speaking on Africa and the Financial Secrecy Index here:

Want more Taxcasts? The full playlist is here. Or here.

Want to subscribe? Subscribe via email by contacting the Taxcast producer on naomi [at] taxjustice.net OR subscribe to the Taxcast RSS feed here OR subscribe to our youtube channel, Tax Justice TV OR find us on Acast, Spotify, iTunes or Stitcher etc. Please leave us feedback and encourage others to listen!

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Follow Naomi Fowler John Christensen, The Taxcast and the Tax Justice Network on Twitter.

Researcher vacancies at the Tax Justice Network: Latin America and Francophone Africa

Towards the end of a challenging, yet also dramatically impactful year, we are excited to announce the recruitment of two researcher roles in the Financial Secrecy and Governance workstream. In the past years, at the Tax Justice Network we have made substantial progress in demonstrating how tax avoidance and evasion globally are sufficiently large and certain to constitute a first-order economic distortion, especially in lower-income countries. In line with this, we have been widening our perspectives on and in the planet, by shifting our attention and centre of gravity beyond the UK and other OECD countries. With the current recruitment of two researchers focused on Latin America and francophone Africa we are very pleased to further support this shift in the next years.

The researchers are going to work in the technical engine rooms of our two leading indices that underpin and monitor the global progress towards a more equal and just world. By researching in the laborious cycles of both the Financial Secrecy Index and the Corporate Tax Haven Index, the researchers will be able to develop an in-depth and cutting edge understanding of leading policies for countering cross-border illicit financial flows, ranging from money laundering by organised crime to tax avoidance by multinational corporations. Yet the pauses in between the nitty-gritty research will offer the researchers to partner with others in- and outside the Tax Justice Network to transform empirical data into studies, reports and peer reviewed academic articles for publication and presentation.

We look forward to recruiting these new roles and invite you, dear reader, to consider applying or distributing this link to any suitable candidates.

Please click on the links below to view for further information on each of the roles and details on how to apply.

Researcher, Latin America
Researcher, Francophone Africa

Tax Justice Network Portuguese podcast #20: O Estado da Justiça Fiscal 2020

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business). All our podcasts (unique productions in five different languages – English, Spanish, Arabic, French, Portuguese) are available here.

#20 Mundo perde US$ 427 bi com abuso fiscal internacional em 2020

O mundo perde pelo menos US$ 427 bilhões por conta de abusos fiscais cometidos por corporações multinacionais e super-ricos em 2020.

Esse dinheiro, que poderia combater as crises social e econômica da pandemia de covid-19 ou ainda a crise climática, é desviado da justa contribuição com impostos e enviado a paraísos fiscais.

Ouça no podcast:

Participantes desta edição:

Conecte-se com a gente!

www.edasuaconta.com 

O download do programa é gratuito e a reprodução é livre para rádios.

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Inscreva-se: info@edasuconta.com

É da sua conta é o podcast mensal em português da Tax Justice Network, com produção de Daniela Stefano, Grazielle David e Luciano Máximo e coordenação de Naomi Fowler.

Tobacconomics: Measuring the value of cigarette taxes

Tobacconomics Scorecard Shines a Light on the Untapped Potential of Cigarette Taxes.

We are delighted to publish this guest blog by Erika D Siu, Project Deputy Director, Visiting Senior Research Specialist, Institute for Health Research and Policy, The University of Illinois. It illustrates the justice of, and the need for, re-pricing to limit public “bads” such as tobacco consumption and carbon emissions.

Tobacconomics — a group of researchers at the University of Illinois Chicago recently released the first edition of the international Cigarette Tax Scorecard  assessing the performance of cigarette tax policies in over 170 countries. Using data from the World Health Organisation, the Scorecard assessment is based on four key components: cigarette price (using purchasing power parity dollars to compare price across countries), changes in the affordability of cigarettes over time, the share of taxes in retail cigarette prices, and the structure of cigarette taxes. Each of the four components is scored using a five-point index, with the total score reflecting an average of the four component scores.

The results show that globally, the overall performance of cigarette tax policies is quite low—especially given the magnitude of the economic and health losses related to tobacco use. Out of a maximum of five points, the global average score is only 2.07.

The Scorecard also reveals that low-income countries in particular stand to reap the most health and economic benefits by raising their tobacco taxes as they have very low tax shares of retail price. The higher the tax share, the more the government gains in revenue vis-a-vis the tobacco industry, which in most countries is dominated by transnational tobacco companies.

Evidence from around the world shows that higher taxes lead to higher prices and that these higher prices decrease overall tobacco use, lead current users to quit, prevent young people from initiating tobacco use, and reduce the negative health and economic consequences of tobacco use.

Tobacco tax increases have the greatest impact in reducing tobacco use among vulnerable populations, including young people and low-income populations. Tobacco use among young people is more sensitive to price increases than tobacco use among adults, which is particularly important given that nearly all tobacco users start during adolescence or as young adults.

Similarly, low-income tobacco users are more responsive to tax and price increases than higher income groups in addition to being more susceptible to the damaging health impacts of tobacco use because they often lack access to health care and services and/or are more likely to have other serious health problems. Faced with higher taxes and prices, these users are more likely to quit or reduce their tobacco use.

At the same time, increasing tobacco taxes generates new government revenues. Despite the reductions in tobacco use that follow tax increases, country experiences across the globe show that significant tobacco tax increases lead to increases in tobacco tax revenues. This happens because the reductions in tobacco use are less than the increase in price, given the addictive nature of the nicotine in tobacco products. The increases in government revenue can be used to fund public health and other sustainable development priorities. The WHO estimates, for example, that a cigarette tax increase of US$ 1 per pack would have raised between US$ 178-219 billion in 2018.

The simultaneous global health and economic crises caused by the COVID-19 pandemic have had devasting impacts on government budgets. Increasing tobacco taxes provides a logical first step for governments to raise revenue for economic recovery while promoting public health. Tobacco use—a slow-moving pandemic in itself—results in more than 8 million deaths and costs economies around US$ 1.4 trillion each year, with the burden falling heaviest on low- and middle-income countries. The Scorecard results show considerable untapped potential for cigarette tax increases to curb these costs and raise much needed revenue.


See also Tax Justice Network’s earlier report Ashes to Ashes.

The Corporate Tax Haven Index: a Joint Research Centre audit

We are pleased to publish a guest blog written by Erhart Szilárd of the European Commission’s Joint Research Centre, presenting their findings of the statistical audit of our Corporate Tax Haven Index 2019. The Tax Justice Network’s first engagement with the centre dates back to 2016, when we began engaging on the evaluation of the Financial Secrecy Index with their world-leading team on composite indices (results published in the Financial Secrecy Index 2018 methodology, pages 163-194). We are proud of this standing relationship because it helps ensure that the index work we do is robust and of internationally leading quality.

The statistical side of the tax equation: The Joint Research Centre Audit of the Corporate Tax Haven Index

By Szilárd Erhart, European Commission’s Joint Research Centre

Indexes are getting increasingly important for policy design, implementation and assessment in today’s information age. Multifaceted issues like tax evasion are difficult, if not impossible at all, to measure by a sole indicator. Information aggregated in an index can, however, effectively synthesise complex and large dataset and distil messages into user-friendly and easy-to-understand measures.

Still, we have to admit that the index development process is challenging at every stage from the conceptualisation to the measurement and communication. To support index developers in improving the reliability and transparency of their indices, the European Commission’s Competence Centre on Composite Indicators and Scoreboards (COIN) at the Joint Research Centre (JRC) in Italy, carries out statistical audits of indexes upon request of international organisations and other European Commission services. To date, over 100 indexes, in a variety of policy domains, have received tailored recommendations from our research team at the JRC.

In 2019, the Tax Justice Network reached out to JRC colleagues and requested the statistical assessment and audit of the Corporate Tax Haven Index, similar to a 2018 JRC audit of the Financial Secrecy Index. The Tax Justice Network team wanted to cross-check the methodology, the background calculations and conceptualisation of the Corporate Tax Haven Index. The JRC’s statistical assessment of the Corporate Tax Haven Index was undertaken between Dec 2019 and June 2020.

After mutually beneficial discussions in 2020, with suggestions for improvements in terms of data characteristics, structure and methods used, the JRC published the statistical audit of the Corporate Tax Haven Index. The audit focused on the statistical coherence of the structure of indicators and the impact of key modelling assumptions on the Corporate Tax Haven Index.

The Corporate Tax Haven Index methodology was found by the JRC to be coherent and thoroughly considered by experts of tax evasion. The audit showed some of the differences in scoring of Corporate Tax Haven Index indicators, their correlation with other indicators and discussed how all these can influence the final Corporate Tax Haven Index scores and rankings. The JRC suggested to weigh up the possibility of using a geometric average for the aggregation of indicators, as it may better reflect the non-compensatory nature of tax avoidance. In general, the Corporate Tax Haven Index was found to be robust, top ten ranked countries of the Corporate Tax Haven Index are in the top of other lists of tax havens in recent studies, applying different empirical methods for the identification. As recommended by the JRC team in its Financial Secrecy Index audit, it would be worthwhile to publish confidence intervals alongside the ranking.

Table 1: Top-ranked countries in corporate tax haven rankings

The development of the Corporate Tax Haven Index, like the construction of any composite indicator, involves assumptions and subjective decisions. The JRC tested the impact of varying some of these assumptions within a range of plausible alternatives in an uncertainty analysis. Here, the objective was to attempt to quantify the uncertainty in the ranks of the Corporate Tax Haven Index, which can demonstrate the extent to which countries can be differentiated by their scores. Although many assumptions made in the development of the Corporate Tax Haven Index could be examined, three particular assumptions were examined in this uncertainty analysis

1. Corporate Tax Haven Index Indicator set [Full set] vs. [Reduced set]

2. Aggregation method [Arithmetic mean] vs. [Geometric mean]

3. Weights [Randomly varied +/-25% from equal weights]

These were chosen as plausible alternative pathways in the construction of the Corporate Tax Haven Index, which can be relatively easily investigated.

The uncertainty in the Corporate Tax Haven Index rankings, given the assumptions tested, was found mostly quite modest. Country ranks could be stated to within around 13 places of precision (Figure 1), although some countries are especially sensitive to the assumptions made. This information should be also used to guide the kind of conclusions that can be drawn from the index. For example, differences of two or three places between countries cannot be taken as “significant”, whereas differences of 10 places upwards can show a meaningful difference. One can also observe that the confidence intervals are generally wider for mid-ranking countries, and narrower for top and bottom-ranking countries.

Figure 1: Simulated rankings (median values and confidence intervals)*

We expect the Corporate Tax Haven Index and its background dataset to energise tax evasion experts, to provide them with a useful benchmark and to help re-colour the black economy with colours from white to green.


Contact: JRC-COIN@ec.europa.eu

About JRC: The Joint Research Centre (JRC) is the European Commission’s science and knowledge service. The JRC provides European Union and national authorities with solid facts and independent support to help tackle the big challenges facing our societies today. The JRC creates, manages and makes sense of knowledge, delivering the best scientific evidence and innovative tools for the policies that matter to citizens, businesses and governments. Twitter: @EU_ScienceHub

[Image: “Index Cards’ ‘DNA'” by ayalan is licensed under CC BY-NC-ND 2.0]

The Tax Justice Network December 2020 Spanish language podcast, Justicia ImPositiva: Las cuentas fiscales del mundo

Welcome to this month’s latest podcast and radio programme in Spanish 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. [The image “i bleed america latina” by leonelponce is licensed under CC BY 2.0]

En este programa:

Las cuentas fiscales del mundo. Todo en el informe anual de la Tax Justice Network El Estado de la Justicia Fiscal: 2020: La justicia fiscal en tiempos de la Covid-19

¿Qué hacer ante este panorama de abuso tributario en el mundo y en América Latina?

Guatemala y la justicia tributaria: manifestaciones multitudinarias contra un presupuesto de la desigualdad.

El abuso tributario en tiempos de coronavirus – golpea mucho más a las mujeres que a los hombres

Invitados:

Alex Cobham Director de Tax Justice Network

Juan Valerdi, profesor de la Universidad de la Plata y ex aseseor del Banco central de Argentina

Javier Estrada Tobar, periodista guatemalteco y especialista en narrativas sociales

Verónica Serafini Latindadd y ONG Decidamos Paraguay 

MÁS INFORMACIÓN:

Enlace de descarga para las emisoras: https://traffic.libsyn.com/secure/j-impositiva/JI_Dic_2020_.mp3

Subscribase a nuestro RSS feed: http://j_impositiva.libsyn.com/rss

O envien un correo electronico a Naomi [@] taxjustice.net para ser incorporado a nuestra lista de suscriptores.

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Estamos tambien en facebook: https://www.facebook.com/Justicia-ImPositiva-1464800660510982/

How tax havens support fossil fuel companies

We’ve been reading an excellent new Reuters report entitled How oil majors shift billions in profits to island tax havens. As it summarises:

“Shell and other oil majors are avoiding hundreds of millions of dollars in taxes in countries where they drill by shifting profits to thinly staffed insurance and finance affiliates based in tax havens, according to a Reuters review of corporate filings and rating agency reports. Shell, BP Plc, Chevron and Total use subsidiaries in the Bahamas, Switzerland, Bermuda, the UK Channel Islands and Ireland.”

Companies claim they do not “engage in artificial tax arrangements.”

One of the most interesting aspects of this report concerns “captive insurance”, which are subsidiaries of the fossil fuel companies, parked in tax havens: their core role seems to be more about escaping tax, than about insuring things. The Reuters story contains an excellent short explainer about how captive insurance works.

Normally, an insurance company hopes to take in more in insurance premiums (which are income) than it has to pay out in insurance claims (which are costs), and if income is greater than cost then it makes a profit.

Captive insurance throws a well-aimed tax haven spanner into this, as the story notes:

“The big oil firms’ captive insurers are far more profitable than a typical insurance company. That’s because the amount they pay in claims accounts for a far lower proportion of the money collected in premiums – all from other affiliates of the oil giants – than is the case at other insurers, Industry data shows. That means the captive insurance units absorb part of the revenue made by the oil majors’ subsidiaries elsewhere – often in high-tax countries where they extract oil and gas – and shift it to operations located in low-tax or no-tax jurisdictions.”

For tax justice connoisseurs, it’s another form of transfer pricing to shift profits into tax havens. But what is astonishing is how brazen this all is. Here’s an example from BP:

“In 2014, Jupiter had an operating ratio – which includes pay-outs and other costs as a share of premiums – of just 1.3%. That compares to more than 90% for most U.S. insurers.”

That is a shocking comparison. All of this boosts fossil-fuel profits, increases inequality, undermines tax systems and faith in democracy. Captive insurance companies also pose financial stability risks (e.g. see p20 here). That’s because tax havens don’t just help big multinationals escape tax: they are generally libertarian zones of regulatory laxity where things like capital and reserve requirements fall away, there is little or no transparency, and little or no direct supervision. (In fact, your correspondent spoke to a senior insurance company official a few years ago who said their giant global company came close to collapsing during the last global financial crisis, largely because of huge risks that had piled up in an offshore subsidiary.)

How do we tackle this? Well, in two main ways.

First, completely re-engineer the international tax system, along lines we have long endorsed, such as country by country reporting, or unitary taxation with formula apportionment. Fortunately, this is now starting to happen. If done properly, these moves could cut captive insurance and many other shenanigans right out of the global tax system, and raise hundreds of billions in tax.

Second, join our two-day online conference to discuss how to pay for the climate transition. It starts in a couple of hours! It is free to all and you can register here to attend.

Download the programme here. If you can’t make it, our recent edition of our newsletter Tax Justice Focus covered these issues in detail.

How to fight inequality: a chat with Ben Phillips

Inequality is out of control in pretty much every country in the world. The Tax Justice Network and many others have laid out a range of policy prescriptions for change, and now even the world’s most powerful institutions, from the IMF to the World Economic Forum, agree with us.

But inequality just keeps getting worse!

Why aren’t our policy prescriptions being put into practice? How can we actually fight inequality?

In this article, two authors finally fix the world. Ben Phillips is a historian and the author of How to Fight Inequality, which has just been released. Nick Shaxson is the author of the books Poisoned Wells, Treasure Islands, and The Finance Curse, and a staff writer for the Tax Justice Network.

Nick asked to interview Ben. But Ben asked in reply if instead he could interview Nick. So they interviewed each other. Here’s an abridged record of their conversation (it’s also posted on Inequality.org).

You can also listen to a fascinating and inspiring conversation with Ben on our monthly podcast the Taxcast:

The Taxcast: How We Win, #108

So, how do we actually fight inequality?

Nick: When I give a presentation about tax havens or about finance, I get this one question all the time, which I struggle with. People say I ‘agree, but what can I do now?’ With an emphasis on the ‘I.”  Your book, How to Fight Inequality, has been most useful to me, in this respect, and more broadly. It has really influenced how I think about all this.   

You root this question of ‘how to fight inequality’ in history. You start by setting out how winning the intellectual argument doesn’t get leaders to shift, that it’s not a debate, it’s a fight.

Ben: I studied history. Whenever someone says how can X or Y happen? – I always ask well, ‘how did it happen before? If we want to reduce inequality, how did people do it before?

There’s an irony that some of the very academic policy wonk types who see themselves as utterly driven by the evidence, still believe that merely presenting evidence will lead decision-makers to pursue transformational change decision-makers, when . . . there’s no historical evidence for that! 

Nick: That’s what you call in your book ‘the Evidence-Based Paradox’?

Ben: Yes. I remember sitting in a room full of economists exchanging formulas with Greek letters. Then I raised my hand, ‘just wondering, everyone here seems to see it as their role that they will present the facts that will explain to leaders how inequality is harmful, and what policy mix would reduce it, is that right?’ I was told ‘yes.’

So I said OK, can anyone tell me about when and where doing that brought a noteworthy reduction in inequality? They went very quiet. Then they started laughing. There had been no historical example of that unspoken assumption ever delivering.

As Jay Naidoo, who founded the trade union coalition in South Africa that helped bring down apartheid, once told me: ‘It was not about how brilliant our argument was. No one cedes power because of a great Powerpoint. What matters is the balance of power between your side, the people’s side, in the confrontation and negotiations with the other side, the side of the elite.’

Nick: Your book is a guidebook for people power. How do we, the people, get control of the wheel? What are the top three lessons from history?

Ben: First, overcome deference. When I looked back, all of the people who eventually won against inequality were told at first to stop causing trouble. Right now, when critics bemoan Black Lives Matter, they say ‘why can’t they be more like Martin Luther King?’ Well, who in a 1966 Gallup Opinion poll show was viewed unfavourably by 63% of Americans? It was Martin Luther King. Because by 2011 Dr King was viewed unfavourably by only 4% of Americans, people often read the recent consensus back into history and assume that he was always broadly accepted, and learn therefore a completely false lesson, that change comes from people and movements who never offend anyone; whereas the true lesson of Dr King and of other change-makers is that fighting inequality requires us to disrupt, to confront power and to take on prevailing norms.

Nick: So, be happy being a trouble-maker. And the second and third lessons?

Ben: Second, build collective power together. The march, the demo, the great speech, are the most visible acts but are not the main work.  It was never the famous leaders that delivered. Even Nelson Mandela – they were really expressions of, or things enabled by, wider groups of thousands of leaders.

The main work is patiently organising. Gather together people in your neighbourhood, your workplace, or your faith community. Then bond and bind your groups with other groups. Revd William Barber calls these fusion coalitions – because ordinary people are only powerful together, in coalitions of coalitions.

Third, create a story. Get above technical policy debates and have more profound conversations about who we are and what we stand for. Presenting data and formulating policy was always a necessary condition, but so insufficient that it’s not even in the top 3 lessons of how change happens. 

Sometimes progressives say “we are the scientists, the experts, we don’t do myths and stories.” Well then, you’ll lose.

As the great union organiser Joe Hill noted,  ‘a pamphlet, no matter how good, is never read more than once, but a song is learned by heart and repeated over and over.’ In Britain in the mid twentieth century, the phrase ‘Welfare State’ came from the Archbishop of Canterbury. In Mexico recently, a big step forward in rights for domestic workers was enabled by the success of the movie Roma which set out no policy propositions, but changed the narrative.

Nick: And then, when you do these three, you win?

Ben: And then you can win. That beautiful chant ‘the people united will never be defeated’ is, sadly, not correct. But what is correct is that the people divided will always be defeated. Resistance doesn’t always work, but acceptance always doesn’t work. Inequality is a contestation over power. It asks us, in the words of the great civil rights song “Which side are you on?”

Now I want to ask you about your work Nick because you do just that, you pick a side.

Your writing is in the great journalistic tradition of the exposé, bringing to light abuses of power and cover-ups, but it does so on economics. That makes you unusual. A lot of crusading journalism now goes no deeper than uncovering one politician who did something embarrassing; meanwhile, on the other hand, so many mainstream books on finance manage to be abstract, dull and elitist. Your work, in contrast, lays bare massive looting.

How did you end up writing about what’s happened to finance, and more specifically, how did you end up writing about it in the way that you do?

Nick: I cut my teeth in a news agency, Reuters. They pride themselves on impartiality. Crudely, you went to one side, got some quotes, went to the other side, got quotes from them, tried to steer some sort of middle ground. The end result was sort of like ‘well this person says this, another person says that, here’s some analysis, and it’s complicated, the end’.

Then I was plunged into Angola, an oil rich country with vast money flows happening, a few people who were very rich, very absent and very distant, and most in abject poverty. The news reporting was all about the war but almost nobody was touching the economic side and how that related to the politics, even though everyone knew there was some awful connection. I began to see how money sloshing downwards through a political system shaped that system in its own image.

It was so clear that this was a story of people doing bad things, of bad systems and bad structures. Neutrality was a trap. I moved from an impartial ‘it’s all complicated’ approach to being clear about good and bad and explaining carefully why.

The dirty secrets of what has gone wrong with finance are not only hidden in vaults – they are also hidden in acronyms or strange phrases, ‘Double Irish’ is one, a linguistic masking that is maybe even more insidious than any physical masking. I work to peel away both of these maskings, and say, plainly, ‘this looks like looting.’

Ben: A lot of people portray corruption as an African phenomenon. But your work calls out leading western institutions, which until recently were fairly well-regarded brands.

Nick: It was a long process of pulling on threads, finding unexpected connections, then keeping pulling, and finding more. Then, in middle of doing that – I was just about to publish Poisoned Wells, my book about oil in Africa – I got a call from the former economic adviser to British tax haven island of Jersey. He wanted to tell me about tax havens. We met up in London and he detailed the corruption, the vested interests, and I saw it was the same story as Angola.  My career, which I had assumed was going to go down the oil-in-Africa route, made a sudden pivot.

I had started in Africa, followed the leads, and ended up back at home in my own country. I laid it out in my tax haven book, Treasure Islands.

Ben: Desmond Tutu said when you keep seeing people drowning in a river, sure, go and rescue them, but also go upstream and stop the guy pushing them in. From Angola, you have gone further and further upstream, right?

Nick: From Angola I could already dimly see offshore, because so much of the wealth was disappearing there.  Then especially with the help of that Jersey official – he’s called John Christensen, and he co-founded the Tax Justice Network – I got to understand the global system of offshore, how it worked. It was much bigger than what I had expected – and Britain and the United States, sat right at its heart.

Ben: You went from writing about the oil curse to writing about the finance curse. What does the finance curse do?

Nick: Tax havens transmit harms outwards, to other countries, but countries with oversized financial centers transmit harms inwards to their own people. Instead of providing services that support the creation of wealth, they focus increasingly on the more profitable business of extracting wealth. Democracy gets undermined, inequality gets worse, and economic growth slows. The answer? Shrink finance, for prosperity.

Ben: Your books includes no-holds-barred revelations of collusion between financial and political elites. How do those whom you have exposed respond. Have they sued?

Nick: I always worried that someone with infinitely deep pockets would destroy my life in the libel courts. But they haven’t sued, except with minor exceptions. They chose a cannier tactic. They didn’t engage with the revelations at all. On a BBC radio programme, I was up against someone from the financial sector to talk about the finance curse. I was worried, would they come out swinging, find some awful mistake in the book? Instead, and I was unprepared for this, her reaction was, ‘yes, well there are some problems in finance, it’s not always so great, but we are trying really hard and things are getting better.’ And that was it. Opposing that is like fighting against mush.

OK so my son, who is 13 years old, has come into the room. So to conclude, can you explain to him, why we need to fight inequality, and how?.

Ben: Hi. Great to meet you.

My daughter, she’s not much older than you, she goes on climate marches where we live now, in Italy. There was a big one planned for a school day, and schools were warning kids that going on the march would have them recorded absent from school without authorisation, a mark against their name. But then it became clear that this march was going to be huge: thousands and thousands and thousands of kids would join, across the country. So the minister for schools said there were just too many kids to all be marked down like this, so he instructed that going to the march would count the same as going to school. Then, after the march, he agreed to change the school curriculum to properly include climate.

Each of those kids who won those victories weren’t powerful on their own, but together they were.

When we look back at history, we see that when the worst unfairnesses got tackled, it was only possible because people came together.  

People standing up together is what stopped governments insisting that different races had to live apart; it is what stopped governments telling women they could not vote; it is what stopped company bosses telling little kids to work down mines or up chimneys. The lesson from history is this: if you want to make your school, your town, your country, fairer, you can –  but not alone. You will find that lots of people care the same as you. It’ll still be really hard. But the only time we’ve ever made steps forward like that was when we’ve pushed, together.

Find out more about How to Fight Inequality by Ben Phillips here

Find out more about The Finance Curse by Nick Shaxson here

Online Conference: How to Pay for the Climate Transition

* *Update: see the full conference, and separate presentations, here.

This week the Tax Justice Network is holding a virtual conference on the subject of How to Pay for the Climate Transition.  The conference opens on Thursday 10th December at 14h00 GMT with a keynote speech from climate justice activist Suzanne Dhaliwal, founder of UK Tar Sands Network, who will discuss why decolonising climate justice and rebalancing existing power structures must be embedded in progressive agendas.  

The second day of the conference will open at 14h00 GMT on Friday 11th December with a keynote speech by Sven Giegold MEP.  Sven, who is also a founder of the Tax Justice Network, will discuss the European Green New Deal, exploring whether it is in fact Green, New, or even a Deal.

The conference is free to all and you can register here to attend. Download the programme here.

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The most consequential outcome of Joe Biden’s election success will be in the area of mitigating the climate crisis.  A progressive US engagement on this issue will determine whether the threat of damaging and irreversible change is averted, and who might benefit from the trillions of dollars that will be poured by governments in the coming decade into making the transition away from the era of fossil fuels.  This question of cui bono, who benefits, is a key topic of our online conference..

According to the International Energy Agency, global investment in the energy sector must reach US$3.5 trillion annually if we are to limit temperature rises to 2.0 degrees centigrade.  The International Monetary Fund argues that a programme on the scale required to deliver this outcome requires a combination of front-loaded green investments, massive investment into research and development, and a sustained political commitment to raising the price of fossil fuels.  In an interesting sign of changing times, the IMF’s October World Economic Outlook, pushes back against the mantra that we face hard political choices between the economy and the environment (see chapter three here).  In brief, we are entering an era when transiting away from fossil fuels is necessary, possible, and, if properly designed, can address many of the other crises facing humanity and the planet we inhabit.

In a blog published earlier this year Tax Justice Network staff writer Nicholas Shaxson commented:

Many people think that the fight to protect the world’s climate is separate from the struggles to tackle inequality, oligarchy, or racial and gender injustices.  For example, climate activists may favour carbon taxes even if such taxes may hit the poor hard and have regressive economic effects, while campaigners for economic justice may oppose carbon taxes for the same reason.  This is a dangerous delusion: the two struggles are inseparable, and each will fail without the other.”

So this is a moment for progressives across the spectrum to engage with the question of how to finance the climate transition in ways that ensure the benefits of the multiple trillions of dollars of public investment in the coming years accrue to society as a whole and are not hijacked by bankers and private equity funds who see ample opportunity for financialising the future energy market.

Over the two days of our conference we will explore these issues, considering both the economic and political challenges confronting progressives.

The day one programme provides some of the answers to the question of how to finance the climate transition in ways that don’t hand the benefits over to private banks and financiers.  First, we need to lay to rest the neoliberal consensus that governments should relinquish the funding role to the private sector: Germany’s best known economist, Peter Bofinger, will argue that governments can and must borrow and press for central bank interventions to finance the transition.  In the mid-afternoon panel session Laura Merrill, Jacqueline Cottrell and Rose Bridger will consider the billions of subsidy paid annually to the fossil fuel sectors, and to key fossil fuel guzzlers like the aviation and maritime industries.  What could be done if these sums were freed up to fund a just transition away from burning hydrocarbons?  And in the final session of day one, TJN Senior Adviser James Henry will interview Jim Boyce on how a carbon dividend can transform carbon taxation to make it socially progressive.

The second day of the conference, starting at 14h00 GMT on Friday 11th December, will consider some the political changes needed to shape a just transition.  Economist Daniela Gabor outlines the stark choice that needs to be made between what she calls the Wall Street Climate Consensus, involving deep financialisation by private sector players who reap huge rewards while passing the risks to the general public, or on the other hand state-green industrial policies and monetary policies, with large penalties imposed on polluting industries.  She is joined on her panel by Chien-Yi Lu who argues that neoliberalism has deliberately frustrated democracy by replacing our political power to promote progressive ideas with narrow calculations based on individual economic calculations.  In the following session Taxcast producer Naomi Fowler will interview Gail Bradbrook, a founder of Extinction Rebellion, about the extremism of the fossil fuel sector and its supporters.

The conference concludes with a panel discussion involving Molly Scott Cato, Sven Giegold and others.

The conference programme is available here.

Click here to register for the conference.

Image attribution: © Sandy Gerrard 

The UK’s #ImperialInequalities: Past, present and future

History faces forwards as well as backwards. Yesterday with our friends at Tax Justice UK we published new work with the Foreign Policy Centre outlining how the UK could embrace a new role in taking forward an agenda to undo the worst harms of its global ‘tax haven’ network, while supporting its dependent territories to find alternative development paths. We’re also in the middle of hosting a two-day online conference on ‘Imperial inequalities: states, empires, taxation and reparations‘, bringing together cutting edge research and policy analysis.

For the UK, the looming exit from the European Union has surfaced public and political sentiments about reclaiming an imagined golden past of benevolent, imperial leadership; while the prominence of the Black Lives Matter protests, and the continuing rights abuses inflicted on the Windrush generation and their descendants, has made it harder for those who would ignore at least some of the structurally racist legacies of the empire.

This time last year, at the debate on the Queen’s Speech on, the newly elected Prime Minister Boris Johnson announced his plans for Brexit and beyond:

“This is not a programme for one year or one Parliament; it is a blueprint for the future of Britain. […] I do not think it vainglorious or implausible to say that a new golden age for this United Kingdom is now within reach. […] As we engage full tilt now in this mission of change, I am filled with invincible confidence in the ability of this nation, our United Kingdom of Great Britain and Northern Ireland, to renew itself in this generation as we have done so many times in the past.”

The UK’s ‘tax haven’ network

Such a renewal requires, perhaps, a clarity about the present situation. Our recently launched State of Tax Justice 2020 provides a categorical assessment of one aspect in particular. In the first truly comprehensive evaluation of the scale and pattern of tax revenue losses around the world due to cross-border corporate tax abuse and offshore tax evasion by wealthy individuals, we find that the UK itself is responsible for around 10 per cent of all global losses inflicted on other countries. When we include the UK’s Crown Dependencies and Overseas Territories – including Cayman, the most damaging of all – this UK network is responsible for more than a third of all global losses, roughly $160 billion a year.

While the State of Tax Justice 2020 has received greater global media coverage in its first two weeks than any other tax justice analysis, ever, the UK coverage has been relatively muted. It is strange, in some ways, to contrast this with the great soul-searching over the government’s decision to cut UK aid spending at a time of rising global hardship.

The UK network is built upon financial secrecy – obscuring both the illicit shifting of multinational companies’ profits, and the anonymous ownership of assets and incomes streams, untaxed. As I will present in my paper today in one of the later sessions of the conference, this is what emerged from the period of formal Empire. Dr Vanessa Ogle’s research, which she presented in yesterday’s keynote, has shown how the first global period of illicit financial flows – as opposed to brute force extraction – was characterised by imperial actors seeking to take their ill-gotten gains out of colonies approaching independence, but without bringing them back into the tax net of the parent country. Our own Nick Shaxson has documented in his book Treasure Islands how the UK government eventually agreed to encourage smaller dependent territories down the path of offshore finance, in order to reduce demands on UK aid and to support the preeminent position in global finance of the City of London.

While British policymakers worried about potential for ‘financial wizards’ in the territories to undermine British tax revenues, they showed no concern for any other country’s revenues. Nor did they worry about the inequalities and broader damage that might be imposed on the dependent territories, due to the political, economic and social threats – now better understood as the ‘finance curse’ – of a disproportionately large financial sector.

The UK as a transparency leader?

But the UK has sometimes provided important international leadership in the area of financial transparency. In the wake of the global financial crisis, in 2009, it was Prime Minister Gordon Brown who ensured that – for the first time ever – the G20 group of countries would work on the basis of a ‘tax haven’ list that reflected an objectively verifiable criterion, on jurisdictions’ participation in the exchange of financial information. That laid the grounds for the subsequent development of a multilateral instrument for automatic exchange, which in turn has brought trillions of dollars in offshore financial accounts into the sight of tax authorities.

Brown’s successor David Cameron moved from the ‘A’ of automatic exchange to the ‘B’ of beneficial ownership transparency, and at the G8 in 2013 led the way in establishing a public register of the ultimate owners of UK companies, and in promoting this around the world. And on the ‘C’ of our ABC of transparency, Cameron’s Chancellor, George Osborne, accepted an opposition amendment to allow the Treasury to require that multinational companies publish their country by country reporting, to lay bare profit shifting, and although he refused to enact it without multilateral agreement, he did go to the EU to lobby his fellow finance ministers to this end.

The current UK government, however, appears to have set a course for financial opacity – in each area of the ABC. Some countries are now publishing bilateral, aggregate data on their automatic exchange of financial information, which allows accountability for tax authorities as well as individual financial centres; the UK refuses. Some countries, including the member states of the EU, are now publishing beneficial ownership registers for trusts and foundations; the UK, as a leading trust jurisdiction, does not. Most countries agreed to provide aggregate country by country reporting data for the OECD to publish jointly – the UK U-turned on this commitment.

Away from tax, there are growing questions about the UK government’s refusal to publish details of many billions of pounds in public procurement during the pandemic, which has been shown to include multiple contracts at prices well in excess of market rates, and in many cases involving people with connections to the governing Conservative party, or to individual ministers or officials. As the National Audit Office concluded in its ‘Investigation into government procurement during the COVID-19 pandemic’ published on 18 November 2020:

“[We] found specific examples where there is insufficient documentation on key decisions, or how risks such as perceived or actual conflicts of interest have been identified or managed. In addition, a number of contracts were awarded retrospectively, or have not been published in a timely manner. This has diminished public transparency, and the lack of adequate documentation means we cannot give assurance that government has adequately mitigated the increased risks arising… [T]here are standards that the public sector will always need to apply if it is to maintain public trust.”

Recommendations for renewal…

While the idea of ‘a new golden age’ might be contested, the potential for renewal is clear. The later sessions of our conference consider policy around reparations for slavery and empire, issues in respect of which UK policymakers can expect to hear increasing demands for action. But right now, it seems the government is looking to establish a UK profile in the world which is not defined by that which it is not (an EU member, or an imperial power; or, now perhaps, a leading aid donor).

Looking ahead to 2021, there are two obvious opportunities: the UK’s hosting of the COP-26 climate talks, and of the G7 group of major economic powers. Leaving climate questions for our climate justice conference next week, the G7 offers the UK government a platform to establish a position on global economic or financial questions.

Given the critical analysis above, it might be tempting to seek to avoid any discussion of tax or transparency. But these are areas where the UK has been able to position itself well before, and which play to the significant leverage that the UK has, given the scale of its network. In fact, this is one of a diminishing number of areas where the UK retains disproportionate international influence.

In the article with Robert Palmer of Tax Justice UK, and our own Andres Knobel, and published by the Foreign Policy Centre, we make recommendations of two types – the immediate priorities for the UK to take forward, for itself and the wider network; and the critical need finally to support the members of that network to be able to pursue alternative development paths:

The UK owes a debt – to these territories, for the road it pushed them down and the damage that has done them; and to the wider world, for the compound costs over decades of the tax abuse and corruption facilitated. Taking a lead on these core aspects of tax and financial transparency, and working to support the network’s shift, would allow the UK to ‘stop the clock’ on this debt – as the basis, perhaps, for a genuine renewal.

…and revenue

Perhaps more compellingly for politicians with immediate pressures, the steps outlined would also help to address the pressure for tax revenues at home.

The UK is one of the biggest losers to cross-border tax abuse, suffering an estimated $40 billion in revenue leakage due to the combination of profit shifting and undisclosed offshore assets. That works out to more than 5% of pre-pandemic tax revenues, and over 18% of the sorely stretched budget for public health – or the annual salaries of an extra 840,000 nurses.

It is clear that the UK, like most others, must take steps to address their revenue position over the coming years. A progressive approach would include the above transparency measures and further steps, to address the scale of the abuse of current taxes; and then the introduction of additional measures, as we called for globally in the State of Tax Justice 2020, with our partners in the Global Alliance for Tax Justice and the global union federation, Public Services International:

Women need real social protection that goes beyond the aspirational

In June 2021 the UN Special Rapporteur on extreme poverty and human rights, Olivier De Schutter, is scheduled to present his report on the establishment of a Global Fund for Social Protection to the 47th session of the UN Human Rights Council. It is timely, as he begins to gather evidence and prepare his report, to highlight this excellent research by Veronica Serafini on the pivotal role played by progressive tax regimes in establishing strong social protection for women.

We are grateful to Patricia Miranda and @latindadd for giving us the opportunity to share this blog in full.


New report “Tax Justice for the social protection of women” addresses gender gaps and inequalities in the coverage of these systems in Latin America.

In Latin America, on average, women earn 20 per cent less than men doing the same jobs. In addition, a good part of the female population in the region is dedicated to carrying out care work, without receiving any compensation for this essential work for the preservation of our societies. Most of them suffer from the limited and deficient coverage of the weak social protection systems provided by our governments.

According to Verónica Serafini, feminist economist and author of the new report “Tax Justice for the social protection of women”, to overcome this problem, one of the key pillars is to have “more tax revenues to finance gender equality in the social protection.” The report points out that there are many groups of women that will never be covered by the traditional protection system, and thus it is necessary to formalise the labour market and collect more taxes so that the State can provide protection against the adversities and vulnerabilities they face throughout their lives. “They are not sitting around waiting, they are performing jobs, both paid and unpaid, that are useful to the society. Despite this, they do not have economic autonomy in their youth nor during their adulthood and old age. They are less covered by the retirement and care systems. Many women depend on someone else throughout their whole lives.”

According to the data provided in the report, edited by the Latin American Network on Debt and Development (Latindadd), a significant share of women in Latin America and the Caribbean work without receiving a salary or do not work in the formal market, implying that they cannot contribute to the pension system. “In the case of households headed by women, 30% of the total in the region, women are single parents. In contrast, households headed by men generally have two adults who provide care, income and food. This does not happen in households headed by women; they are more complex and more vulnerable than the traditional ones”.

Serafini Geoghegan also noted that the new report presents data that helps to explain the current dissatisfaction the region is experiencing. This new report reveals the relationship that exists between taxation issues and those problems faced by women, “which is often difficult to identify. A tax system that does not work well affects women in every way, such as a social protection system with low coverage, poor quality, lack of care policies and actions against violence”, Serafini highlighted.

Worrying numbers

The report “Tax Justice for the social protection of women” highlights among many findings that while 71.9 per cent of men aged 15 years or more are active in employment, only 48.3 per cent of women participate in the labour market. In contrast, the study shows that 17.8 per cent of women in the region are exclusively dedicated to domestic chores, compared to only 0.9 per cent of men dedicated to this type of work. The existing gap in paid and unpaid work and, therefore, in the distribution of income and social protection coverage is evident.

Another point to consider when analyzing the weak structure of our social protection systems is what happens with the expansion of social security, concentrated mainly in urban sectors and in the richest quintiles of the population. Only in Brazil, Chile, Costa Rica and Uruguay, does more than half of the employed population has coverage. When looking at the case of the poorest quintiles of the population the situation is dire: less than 10 per cent of the population has coverage.

It is important to consider the need for a gender approach in social protection systems and income generation. In the region, 28.9 per cent of women over 15 years of age do not have their own income, compared to 12.5 per cent ​​of men. However, there are cases where this gap is even deeper, such as in Guatemala, where 51 per cent of women have no source of income. In Costa Rica, Ecuador and El Salvador this figure is around 35 per cent.

Is a model change necessary?

According to the author of the new report “Tax Justice for the social protection of women” there are two main obstacles to overcome in order to achieve a social protection system with a gender perspective. “The first is the re-design of social protection systems; they are conceived from an androcentric approach: a male head of the family, who works under a dependency relationship and whose coverage will include his entire family.”

The second aspect that Serafini highlights as key to improving the coverage of these systems in our region is financing. “We can change everything to try and cover everyone, but without financing it will not be possible. If there are no resources, because there is low tax pressure, because there is tax avoidance and tax evasion and regressive tax systems prevail, it will not be solved either. On the one hand, there is the design of the social protection system that incorporates the gender perspective and, on the other hand, a tax system that guarantees the right to social protection for women”, she highlighted.

Read the report in Spanish.

Read the report in English.

Details about the UN Special Rapporteur’s forthcoming report on a Global Standard for Social Protection can be found here.

New book provides practical solutions to make tax work to reduce poverty

We’re delighted to announce a new book: Tax Justice and Global Inequality: Practical Solutions to Protect Developing Country Tax Revenues, edited by Krishen Mehta, Erika Dayle Siu and Esther Shubert, published by Zed Books and featuring contributions from many leading thinkers in the field. The following post, by Erika Dayle Siu and Krishen Mehta (who is also a board member of the Tax Justice Network), introduces the key issues and contributors.


In Myanmar, 50 out of every 1,000 children that are born die before the age of 5; in Norway the equivalent number is 2. In Equatorial Guinea 342 women die in childbirth for every 100,000 births; in France, the equivalent number is 8. In Japan, 100% of the primary school age children are enrolled in school; in West and Central Africa, more than 25% of the children are not enrolled in any school at all.

There are many reasons for the current situation, and there is no doubt that poor management, lack of transparency in governance, and the role of local elites contribute to the problem. But the existence of limited resources to meet their needs is foundational. Corruption, and the resultant competition for limited resources, is a natural outcome of the lack of resources.

What are some of the future consequences of such extreme poverty?

There is the risk that a large number of the lower income countries in the Global South, particularly in Africa, Latin America, and parts of Asia could face greater instability in the years to come as a result of these tax losses. This has implications not only for these countries and regions, but also for countries beyond, including in the Global North.

If the refugee migration from some of these countries thus far has already had negative implications for the Global North, then what will happen if the situation becomes much worse economically in the Global South in the years to come? Clearly, the shortfall of tax revenues will make it very difficult for these countries to invest for the future and provide hope for their citizens, especially the younger generations. If this situation is left unchecked, it could have major spillover effects on the Global North that could make the current refugee and migration crisis seem modest in comparison.

What then is the answer to the current situation?

Based on various estimates, it is believed that the resources needed to address the scourge of extreme poverty globally have risen since the pandemic, to around US$ 100 billion a year; although recent estimates by the Tax Justice Network indicate that as much as US$ 427 billion a year is lost due to aggressive corporate tax avoidance and evasion by wealthy individuals. That means that if the current faults in the global tax rules did not exist, the challenge of extreme poverty could very well be remedied several times over.

Estimates of the number of people living in extreme poverty since the beginning of the Covid-19 pandemic have surged upward by an additional 120 million people. This means that there are now likely to be over 766 million people, or close to 10 percent of the global population living on less than $1.90 per day.  Alleviating such extreme poverty would require about US$ 100 billion – but recent estimates by the Tax Justice Network indicate that as much as US$ 427 billion a year is lost due to aggressive corporate tax avoidance and evasion by wealthy individuals. That means that if the current faults in the global tax rules did not exist, the challenge of extreme poverty could very well be remedied four times over in one year.

The need for resources also extends to emerging economies seeking to promote public health and a healthy and productive workforce, especially as they grapple with fiscal imbalances caused by the pandemic. An analysis in 2019 estimated that over 50 million premature deaths could be prevented if countries increased excise taxes to raise prices of tobacco, alcohol, and sugary beverages by 50 percent over the next 50 years. These reforms would yield over US$ 20 trillion in revenue.

Contributions of this new book

These are just a few of the many opportunities to mobilize a considerable amount of resources for sustainable development and poverty reduction. The essays in a new book, titled: Tax Justice and Global Inequality: Practical Solutions to Protect Developing Country Tax Revenues, edited by Krishen Mehta, Esther Shubert, and Erika Dayle Siu offer practical tax policy solutions at the domestic and international levels and provide alternatives to current taxation rules that are not working to support developing country priorities.

This book brings together a group of authors who present solutions from varied perspectives, concerned not only about revenue raising, but also the environment, public health, fair trade agreements, and human rights.

In many countries, discussions about tax reform are often dominated by the views of economists and financial experts, and the reform process is often not subject to full democratic debate. As a result, technical considerations of efficiency and ease of administration often overshadow discussions of economic, social, and environmental equity. It is this trend that we seek to counter in creating a system that is just as well as efficient. The essays in this volume represent an effort toward that goal.

Tax Justice Network Portuguese podcast #19: Carrefour e Pão de Açúcar: abusos em nome do lucro

Welcome to our monthly podcast in Portuguese, É da sua conta (it’s your business). All our podcasts (unique productions in five different languages – English, Spanish, Arabic, French, Portuguese) are available here.

É da sua conta #19: Carrefour e Pão de Açúcar: abusos em nome do lucro

Carrefour e Pão de Açúcar cometem diversos abusos – tributários, trabalhistas, com fornecedores e clientes –  tudo para lucrar ainda mais, revela o livro “Donos do mercado”, dos jornalistas João Peres de Victor Matioli. Os abusos tributários e comerciais das duas maiores redes de supermercados que operam no Brasil estão no episódio #19 do É da Sua Conta.  Ouça:

Participantes desta edição:

Mais informações:

Este episódio é dedicado a João Alberto Silveira Freitas e a todas as pessoas vítimas de crimes raciais.

Conecte-se com a gente!

www.edasuaconta.com 

Download do podcast

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Plataformas de áudio: Spotify, Stitcher, Castbox, Deezer, iTunes.

Inscreva-se: info@edasuconta.com

É da sua conta é o podcast mensal em português da Tax Justice Network, com produção de Daniela Stefano, Grazielle David e Luciano Máximo e coordenação de Naomi Fowler.

O download do programa é gratuito e a reprodução é livre para rádios.

Imperial inequalities: states, empires, taxation & reparations: online conference

Online conference:  3 and 4 December 2020 – Register here

Co-organised with Gurminder K Bhambra, University of Sussex and Julia McClure, University of Glasgow, also based on a forthcoming book Imperial Inequalities: Taxation and Welfare across European Empires

In previous centuries European countries exercised the ‘aggressive extension’ of their authority. Their political interests extracted value and hardwired systems, culture and law to ‘lock’ colonised countries into debt and fiscal dependency.  More recent decades, during ‘decolonisation’, saw the perfecting of this imperialist authority leaving a legacy of fiscal indenture.

Today defenders of imperialist systems – multinational companies and wealthy individuals – continue to exploit their powerful advantage leaving states impoverished and often democratically weak.

This conference will highlight the genesis of inequalities within countries and between countries.  And in examining this, legacy contributors will explore directions for reparation and reprogramming global tax law and policy.

Questions we’ll be exploring:

Read more and register here

New report, new website, new chapter for the Tax Justice Network

A lot of people will be visiting our website today to read about the State of Tax Justice 2020 report that we’ve just launched globally. But the regular visitors among you will have noticed a second major launch today from the Tax Justice Network: our new website and branding.

What happened to the map?

The Tax Justice Network launched in 2003 after three Jersey islanders – Jean Anderson, Pat Lucas and Frank Norman – contacted former Jersey senior economic advisor and our founder-to-be John Christensen, asking him to help them save their island from the tax haven it had become. If you’re unfamiliar with the story of how a small group of school teachers and nuns baked and sold enough cakes to get the Tax Justice Network on to its feet and spark a global tax justice movement, the video below about the fire-starting trio and the annual award we named after them is well worth a watch.

With the launch of the Tax Justice Network came a logo that has served as the face of the organisation for nearly two decades. At the time, not many people knew about tax havens and their devastating impact on inequality around the world. The Tax Justice Network’s logo, just like the rest of our work at the time needed to draw attention to the globe-spanning nature and urgency of the problem.

Fast forward 17 years, and after numerous offshore scandals, tax havens are regularly featured in the news and tackling them is high on national and global agendas. Polling conducted this year in seven leading countries shows overwhelming public support for policymakers to crack down on companies using tax havens.

With the launch of the State of Tax Justice 2020 today, the debates about whether tax havenry is something that happens at the heart of the global economy, not its palm-fringed peripheries; and about whether global tax abuse is large enough to constitute a first-order economic problem; are over. The world’s biggest tax havens are OECD member countries: the UK (with its network of Overseas Territories and Crown Dependencies), the Netherlands and Luxembourg. Countries are losing over $427 billion to global tax abuse ever year. Losing a nurse’s yearly salary every second to a tax haven is very much a problem, especially during a pandemic.

The numbers are in. It’s time to act.

The way forward

The Tax Justice Network’s rebrand is characterised by a key pivot from drawing attention to the problem to pointing the way forward to the solution. While the Tax Justice Network has been proposing and successfully ushering in radical and imaginative polices solutions since 2003, we wanted our new branding itself to inspire people to reimagine the role tax plays in their life, and to reimagine a world where tax justice is realised.

The first step was to rethink the colours we use. Our red, black and grey colour scheme was good at communicating the gravity and urgency of the issue, which is why you’ll often find variations of this scheme used by NGOs. But what if we wanted more from our colour scheme?

After some brainstorming, we realised: what better colour to communicate both the possibility of a new world and the prosperity to be gained by all in a just society than a bright and warm yellow? The colour of both the sun and the simplest symbol for tax, a gold coin.

The second step was to find a design that could visualise what we want to say. In the end, the simplest symbol proved the best: an arrow pointing the way.

Putting it all together, we’re delighted to finally share with your our new Tax Justice Network logo.

Reprogramming our tax systems

A number of the Tax Justice Network’s policy proposals are global standards today. The data published by the OECD this summer which made our State of Tax Justice 2020 report possible was collected under country by country reporting, based on our original proposals and the draft international accounting standard published by Richard Murphy in 2003. Nonetheless, there’s still a long way to go to achieving tax justice.

For decades, our governments have been using tax policy as a tool to indulge the desires of the wealthiest and most powerful multinational corporations and individuals, instead of protecting people’s wellbeing. As a result, our societies are characterised by gross inequalities that deny us the opportunities to make a good life possible for everyone. This has dealt an ever heavier blow to women, people of colour and disabled people who already face systematically poorer prospects. Yet despite tax rates being cut down to the lowest levels of the modern period, multinational corporations and wealthy individuals are still short-changing people out of $427 billion in tax every year.

We must reprogramme our global tax system to prioritise people’s health and livelihoods over the desires of those bent on not paying tax. That means using tax policy as tool for making sure everybody has access to the opportunities that make a good life possible.

And so, to better equip people and governments around the world with the information and resources they need to reprogramme their tax systems, we’ve completely revamped our website to make it easier for visitors to find the content they need and to learn about the tax justice issues that impact them.

The new website we’ve launched today incorporates feedback we’ve received over the years from our website visitors, supporters and global network about what they want to get out of our website. Alongside a cleaner interface for more comfortable reading and a more intuitive organising of content, our new website packs a number of clever features we think you’ll find useful – like our country profiles. We’ll be launching more features in the coming weeks, including the ability to filter content and research by topics and region.

Our new report, rebrand and website launched today marks a new chapter for the Tax Justice Network. For those of you who have been with us on this journey for some time now, we thank you for your support and look forward to taking on the work ahead together. And for those of you joining us today for the first time, a big welcome from the Tax Justice Network team – there’s plenty of room for you in the fight for tax justice. We’re just getting started.

$427bn lost to tax havens every year: landmark study reveals countries’ losses and worst offenders

The equivalent of one nurse’s annual salary is lost to a tax haven every second

Countries are losing a total of over $427 billion in tax each year to international corporate tax abuse and private tax evasion, costing countries altogether the equivalent of nearly 34 million nurses’ annual salaries every year – or one nurse’s annual salary every second.1 As pandemic-fatigued countries around the world struggle to cope with second and third waves of coronavirus, a ground-breaking study published today reveals for the first time how much public funding each country loses to global tax abuse and identifies the countries most responsible for others’ losses. In a series of joint national and regional launch events around the world, economists, unions and campaigners are urging governments to immediately enact long-delayed tax reform measures in order to clamp down on global tax abuse and reverse the inequalities and hardships exacerbated by tax losses.2

The inaugural edition of the State of Tax Justice – an annual report by the Tax Justice Network on the state of global tax abuse and governments’ efforts to tackle it, published today together with global union federation Public Services International and the Global Alliance for Tax Justice – is the first study to measure thoroughly how much every country loses to both corporate tax abuse and private tax evasion, marking a giant leap forward in tax transparency.

While previous studies on the scale of global corporate tax abuse have had to contest with the fog of financial secrecy surrounding multinational corporations’ tax affairs, the State of Tax Justice analyses data that was self-reported by multinational corporations to tax authorities and recently published by the OECD, allowing the report authors to directly measure tax losses arising from observable corporate tax abuse. The data, referred to as country by country reporting data3, is a transparency measure first proposed by the Tax Justice Network in 2003. After nearly two decades of campaigning, the data was made available to the public by the OECD in July 2020 – although only after multinational corporations’ data was aggregated and anonymised.4

Of the $427 billion in tax lost each year globally to tax havens, the State of Tax Justice 2020 reports that $245 billion is directly lost to corporate tax abuse by multinational corporations and $182 billion to private tax evasion.5 Multinational corporations paid billions less in tax than they should have by shifting $1.38 trillion worth of profit out of the countries where they were generated and into tax havens, where corporate tax rates are extremely low or non-existent. Private tax evaders paid less tax than they should have by storing a total of over $10 trillion in financial assets offshore.

Poorer countries are hit harder by global tax abuse

While higher income countries lose more tax to global tax abuse, the State of Tax Justice 2020 shows that tax losses bear much greater consequences in lower income countries.6 Higher income countries altogether lose over $382 billion every year whereas lower income countries lose $45 billion. However, lower income countries’ tax losses are equivalent to nearly 52 per cent of their combined public health budgets, whereas higher income countries’ tax losses are equivalent to 8 per cent of their combined public health budgets. Similarly, lower income countries lose the equivalent of 5.8 per cent of the total tax revenue they typically collect a year to global tax abuse whereas higher income countries on average lose 2.5 per cent.

The same pattern of global inequality is also strongly visible when comparing regions in the global north and south. North America and Europe lose over $95 billion in tax and over $184 billion respectively, while Latin America and Africa lose over $43 billion and over $27 billion respectively. However, North America and Europe’s tax losses are equivalent to 5.7 per cent and 12.6 per cent of the regions’ public health budgets respectively, while Latin America and Africa’s tax losses are equivalent to 20.4 per cent and 52.5 per cent of the regions’ public health budgets respectively.

Rich countries are responsible for almost all global tax losses

Assessing which countries are most responsible for global tax abuse, the State of Tax Justice 2020 provides the strongest evidence to date that the greatest enablers of global tax abuse are the rich countries at the heart of the global economy and their dependencies – not the countries that appear on the EU’s highly politicised tax haven blacklist or the small palm-fringed islands of popular belief. Higher income countries are responsible for 98 per cent of countries’ tax losses, costing countries around the world over $419 billion in lost tax every year while lower income countries are responsible for just 2 per cent, costing countries over $8 billion in lost tax every year.

The five jurisdictions most responsible for countries’ tax losses are British Territory Cayman (responsible for 16.5 per cent of global tax losses, equal to over $70 billion), the UK (10 per cent; over $42 billion), the Netherlands (8.5 per cent; over $36 billion), Luxembourg (6.5 per cent; over $27 billion) and the US (5.53 per cent; over $23 billion).

G20 countries meeting tomorrow responsible for over a quarter or global tax losses

G20 member countries meeting this weekend for the Leaders’ Summit 2020 are collectively responsible for 26.7 per cent of global tax losses, costing countries over $114 billion in lost tax every year. The G20 countries themselves also lose over $290 billion each year.

In 2013, the G20 mandated the OECD to require collection of the country by country reporting data analysed by the State of Tax Justice 2020 – a measure the OECD had long resisted until then. In 2020, the OECD’s consultation on country by country reporting highlighted two major demands from investors, civil society and leading experts: that the technical standard be replaced with the far more robust Global Reporting Initiative standard, and – crucially – that the data be made public.7

The Tax Justice Network is calling on the G20 heads of state summit this weekend to require the publication of individual multinationals’ country by country reporting, so that corporate tax abusers and the jurisdictions that facilitate them can be identified and held to account.

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

“A global tax system that loses over $427 billion a year is not a broken system, it’s a system programmed to fail. Under pressure from corporate giants and tax haven powers like the Netherlands and the UK’s network, our governments have programmed the global tax system to prioritise the desires of the wealthiest corporations and individuals over the needs of everybody else. The pandemic has exposed the grave cost of turning tax policy into a tool for indulging tax abusers instead of for protecting people’s wellbeing.

“Now more than ever we must reprogramme our global tax system to prioritise people’s health and livelihoods over the desires of those bent on not paying tax. We’re calling on governments to introduce an excess profit tax on large multinational corporations that have been short-changing countries for years, targeting those whose profits have soared during the pandemic while local businesses have been forced into lockdown. For the digital tech giants who claim to have our best interests at heart while having abused their way out of billions in tax, this can be their redemption tax. A wealth tax alongside this would ensure that those with the broadest shoulders contribute as they should at this critical time.”

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

“The reason frontline health workers face missing PPE and brutal understaffing is because our governments spent decades pursuing austerity and privatisation while enabling corporate tax abuse. For many workers, seeing these same politicians now “clapping” for them is an insult. Growing public anger must be channelled into real action: making corporations and the mega rich finally pay their fair share to build back better public services.

“When tax departments are downsized and wages cut, corporations and billionaires find it even easier to swindle money away from our public services and into their offshore bank accounts. This is of course no accident; many politicians have wilfully sent the guards home. The only way to fund the long-term recovery is by making sure our tax authorities have the power and support they need to stop corporations and the mega rich from not paying their fair share. The wealth exists to keep our societies functioning, our vulnerable alive and our businesses afloat: we just need to stop it flowing offshore.

“Let’s be clear. The reason corporations and the mega rich abuse billions in taxes isn’t because they’re innovative. They do it because they know politicians will let them get away with it. Now that we’ve seen the brutal results, our leaders must stop the billions flowing out of public services and into offshore accounts, or risk fuelling cynicism and distrust in government.”

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

“The State of Tax Justice 2020 captures global inequality in soberingly stark numbers. Lower income countries lose more than half what they spend on public health every year to tax havens – that’s enough to cover the annual salaries of nearly 18 million nurses every year. The OECD’s failure to deliver meaningful reforms8 to global tax rules in recent years, despite the repeated declaration of good will, makes it clear that the task was impossible for a club of rich countries. With today’s data showing that OECD countries are collectively responsible for nearly half of all global tax losses, the task was also clearly an inappropriate one for a club heavily mixed up in global tax havenry.

“We must establish a UN tax convention to usher in global tax reforms. Only by moving the process for setting global tax standards to the UN can we make sure that international tax governance is transparent and democratic and our global tax system genuinely fair and equitable, respecting the taxing rights of developing countries.”

Country cases of tax losses

Responsibility for global tax losses

Three actions governments must take

The Tax Justice Network, Public Services International and the Global Alliance for Tax Justice, along with supporting NGOs, campaigners and experts around the world, are together calling on governments to take three actions to tackle global tax abuse:

-ENDs-

Read the report

View country profiles

Contact the press team: media@taxjustice.net or +44 (0)7562 403078

The research will be presented at virtual event taking place from 1:00pm  to 2:30 pm GMT on Friday 20 November 2020. The event will features speakers from around the world. Registration is available here.

Notes to Editor

  1. The tax losses of countries around the world are equivalent to nearly 34 million nurses’ annual salaries every year. Instead of a blanketly applying one country’s average annual nurse salary to the world, the global number of equivalent nurses’ salaries lost is arrived at by first calculating how much each country’s tax losses is equivalent to in local average annual nurse salaries in the country. Each country’s equivalent in nurses’ annual salaries is then summed to produce a global total the reflects nurses’ annual salaries around the world. Countries’ average annual nurse salaries are sourced from OECD data. For non-OECD countries, we use the average salary in the country, as reported by the International Labor Organization. Missing values in the OECD and ILO databases were calculated using the relation between the country’s average salary and GDP per capita found in other countries.
  2. A global virtual event launching the State of Tax Justice 2020 will take place at 1pm GMT on Friday 20 November 2020.
  3. Country by country reporting is 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. By requiring multinational corporations to publish how much profit they made and how much cost they incurred in each country in which they operate, public country by country reporting makes it impossible for corporations to shift profit into tax havens for the purpose of warping tax obligations elsewhere without being detected. This also exposes the cost of corporate tax havens’ aggressive tax policies to other countries.
  4. An international accounting standard for public 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 $245 billion less in corporate tax than they should, it is not possible to identify which multinational corporations are responsible.

    For countries that did not make country by country reporting data available, the State of Tax Justice uses information about the activity of multinational corporations within the non-reporting country from the data made available by other reporting countries. The more data coverage a country has – ie, the more countries whose country by country reporting cover a given, other country – the greater the accuracy of the estimates for the latter. Hence the importance of the transparency measure. As more countries get on board with country by country reporting in the coming years, the sharper the estimates will become.
  5. Countries’ annual tax loss estimates are calculated using data from the latest year available as of time of writing. Corporate tax abuse estimates are based on analysing the latest country by country reporting data from the OECD, which are for 2016. Private tax evasion estimates are based on analysing data on bank deposits from the Bank for International Settlements from 2018. These estimates are representative of the tax losses countries incur on an annual basis.
  6. The World Bank classifies countries on the basis of gross national income per capita as either low, lower middle, upper middle or high income. Roughly half the world’s population lives in the two lower income groups, and roughly half in the higher income groups. Accordingly, when referring to “higher income” countries in this press release and report, we refer to high income and upper middle income countries grouped together, and when referring to “lower income” countries, we refer to lower middle income and low income countries grouped together.
  7. More information is available here about the OECD consultation and the Global Reporting Initiative’s Tax Standard.
  8. The OECD’s blueprint for reforms published in October 2020 has been widely criticised by Joseph Stiglitz, Eva Joly, Jayati Ghosh and other leading economists and tax experts for failing to deliver meaningful reform. The Tax Justice Network criticised the OECD’s proposal for being a “tax haven lite” plan.
  9. Bloomberg: Vietnam Estimates Typhoon Molave Caused $430 Million of Damage
  10. Approximately half (49.2 per cent) of the adult population in South Africa were living below the upper-bound poverty line in 2015. According to the government survey, there were 35.1 million adults (aged 18 years and older) under the upper-bound poverty line. Adult females experienced higher levels of poverty when compared to their male counterparts.
  11. The South African government measures poverty by three threshold points. The upper-bound poverty line, the lower-bound poverty line and the food poverty line. The latest values for the poverty lines, among which upper-bound poverty line is the highest, were published by the South African government in 2019.
  12. For a list of Greece’s scheduled debt repayments, see here.
  13. Most of the UK’s Overseas Territories and Crown Dependencies ranked high on the Tax Justice Network’s Corporate Tax Haven Index in 2019, a ranking of how complicit countries’ legal and financial systems are in enabling global corporate tax abuse (see note 13 below). The Corporate Tax Haven Index previously estimated the UK and its network of Overseas Territories and Crown Dependencies to be collectively responsible for a third of the world’s risks for global corporate tax abuse.

    While the index measured risks for corporate tax abuse, it could not directly measure corporate tax losses arising from those risks due to the difficulty in measuring corporate tax abuse prior to the publishing of country by country reporting data by the OECD this past summer.

    The State of Tax Justice 2020 confirms that the UK spider’s web is responsible for 28.5 per cent of the tax losses countries incur from corporate tax abuse, in line with the index’s 2019 estimate. When including tax losses to private tax evasion, the UK spider’s web is responsible for 37.4 per cent of all tax losses suffered by countries around the world, costing countries over $160 billion in lost tax every year.

    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 4 million times.
  14. The Corporate Tax Haven Index ranks countries by their complicity in global corporate tax havenry. The index scores each country’s legal, tax and financial system based on the degree to which it enables corporate tax abuse. Each country’s corporate tax haven score is then combined with the scale of corporate activity in the country to determine the share of global corporate activity put at risk of tax avoidance by the country. The greater the share of global corporate activity put at risk of corporate tax abuse by the country’s tax and financial system, the higher the country ranks on the index. The following 10 jurisdictions ranked highest on the latest edition of the Corporate Tax Haven Index published in 2019:  1. British Virgin Islands (British territory), 2. Bermuda (British territory), 3. Cayman Islands (British territory), 4. Netherlands, 5. Switzerland, 6. Luxembourg, 7. Jersey (British dependency), 8. Singapore, 9. Bahamas, 10. Hong Kong. For more information on the index and the axis of tax avoidance, see here.
  15. Analysis by the Tax Justice Network of country by country reporting data published in early 2020 by the US ahead of the OECD’s publishing of country by country data found that the axis of tax avoidance cost EU member states over $27 billion in lost corporate tax a year solely from US multinational corporations operating in the EU.
  16. Of the 12 jurisdictions on the EU tax haven blacklist, data was only available for 8 jurisdictions for the State of Tax Justice 2020 to analyse: Barbados, Fiji, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu, Seychelles. Due to the very small sizes of the economies of the four jurisdictions for which data is not available (American Samoa, Anguilla, Guam, US Virgin Islands), the absence of the jurisdictions from the analysis of the EU blacklist is not expected to have any material impact on the analysis.
  17. Analysis by the Tax Justice Network in 2018 found that the EU tax haven blacklist blocks just 1 per cent of financial secrecy services threatening EU economies.
  18. Analysis of the EU’s decision to blacklist British Overseas Territory Cayman in February 2020 is available here.
  19. Under the excess profit tax, each country where the multinational corporation operates would have the right to tax a share of the corporation’s global excess profits according to the country’s local corporate tax rates. The size of the share of excess profits that is apportioned to a country to tax would be based on the share of the multinational corporation’s workforce and sales based in the country. Meaning, countries where multinational corporations hire employees, run factories and offices, and sell goods and service – ie, where they genuinely do business – will have the right to tax a bigger share of the corporation’s excess profit at local corporate tax rates than countries where the corporation only exists as rented mailboxes for profit shifting purposes. This method of taxing global profit is known as unitary tax.

Tax losses by regions and income groups:

Region or groupTotal tax lossTax loss to corporate abuseTax loss to private abuseEquivalent health budgetEquivalent nurses’ salaries
World$427,782,662,532$244,903,619,563$182,875,735,3679.22%33,913,688 nurses
Higher income$382,744,587,716$202,166,248,454$180,575,939,2628.41%16,289,176 nurses
Lower income$45,021,135,653$42,737,371,109$2,282,856,94252.36%17,623,965 nurses
Africa$25,775,160,683$23,242,133,255$2,532,717,66652.46%10,130,883 nurses
Asia$73,372,803,475$46,190,152,354$27,182,053,2816.48%11,371,221 nurses
Caribbean/ American Isl.$1,429,594,178$642,376,849$784,817,33012.41%182,632 nurses
Europe$184,087,359,433$79,529,965,976$104,557,393,45712.58%4,636,180 nurses
Latin America$43,111,038,773$40,123,746,097$2,987,292,67620.41%6,225,731 nurses
Northern America$95,099,311,659$52,551,805,288$42,547,506,3715.70%1,252,972 nurses
Oceania$4,907,394,330$2,623,439,745$2,283,954,5864.79%114,069 nurses

Tax losses inflicted on others by regions and income groups:

RegionTotal inflicted tax lossInflicted tax loss due to corporate abuseInflicted tax loss due to private abuseShare of global tax loss responsible for
Higher income$419,574,170,899$237,340,746,418$182,233,424,48198.08%
Lower income$8,209,131,410$7,567,170,747$641,960,6631.92%
Africa$4,739,131,071$3,582,718,497$1,156,412,5751.11%
Asia$76,216,744,183$67,520,067,437$8,696,676,74617.82%
Caribbean/
American Isl.
$115,808,151,640$58,123,586,045$57,684,565,59527.07%
Europe$187,962,465,805$99,803,107,457$88,159,358,34843.94%
Latin America$5,536,878,049$3,447,622,190$2,089,255,8591.29%
Northern America$31,497,411,993$7,557,038,524$23,940,373,4697.36%
Oceania$6,022,862,769$4,873,777,015$1,149,085,7541.41%

Top 15 countries most responsible for global tax losses:

CountryTax loss inflicted on other countriesTax loss inflicted by enabling corporate tax abuseTax loss inflicted by enabling private tax evasionShare of global tax loss responsible for
Cayman Islands$70,441,676,611$22,819,899,267$47,621,777,34416.47%
United Kingdom$42,464,646,560$13,671,390,701$28,793,255,8599.93%
Netherlands$36,371,503,832$26,593,707,934$9,777,795,8988.50%
Luxembourg$27,607,634,145$9,283,427,114$18,324,207,0316.45%
United States$23,635,935,547$0$23,635,935,5475.53%
Hong Kong$21,047,358,012$16,331,010,356$4,716,347,6564.92%
China$20,045,803,268$20,045,803,268$04.69%
British Virgin Islands$16,295,774,429$10,405,615,250$5,890,159,1803.81%
Ireland$15,830,940,779$6,068,846,053$9,762,094,7273.70%
Singapore$14,633,842,974$12,221,060,747$2,412,782,2273.42%
Bermuda$13,843,144,682$10,860,143,218$2,983,001,4653.24%
Switzerland$12,844,985,635$10,953,644,082$1,891,341,5533.00%
Puerto Rico$9,177,305,410$9,177,305,410N/A2.15%
Jersey$7,911,160,368$4,465,999,479$3,445,160,8891.85%

About the Tax Justice Network

The Tax Justice Network believes a fair world, where everyone has the opportunities to lead a meaningful and fulfilling life, can only be built on a fair code of tax, where we each pitch in our fair share for the society we all want. Our tax systems, gripped by powerful corporations, have been programmed to prioritise the desires of the wealthiest corporations and individuals over the needs of everybody else. The Tax Justice Network is fighting to repair this injustice. Every day, we equip people and governments everywhere with the information and tools they need to reprogramme their tax systems to work for everyone.

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 growing movement of civil society organisations and activists, united in campaigning for greater transparency, democratic oversight and redistribution of wealth in national and global tax systems. We comprise the five regional tax justice networks of Africa, Latin America, Asia, North America and Europe, which collectively represent hundreds of organisations.

How secrecy kills: the Beirut explosion in the Tax Justice Network November 2020 podcast

In this episode of the Tax Justice Network’s monthly podcast, the Taxcast:

The transcript is available here (may have small errors from some automated transcription)

Featuring:

This is what I can’t tolerate anymore, the lies by these people that all day long are talking about free speech and the fight against corruption. This cannot continue. Every story we are looking at now today in the Arab world will have a connection to one of those safe havens, and God knows how can you find the real owners if every jurisdiction says, sorry, we can’t give out any data, helping people that should be exposed. You know, your country and US and all these offshores are providing all the secrecy and the ability to shield the beneficial ownerships and the structures of these companies.”

~ Rana Sabbagh, OCCRP, the Organised Crime and Corruption Reporting Project and founder of the Arab Reporters for Investigative Journalism

It is not okay anymore in 2020 to own a business, to own a ship that you have deliberately hidden the ownership of through hugely complicated structures to either avoid tax or minimise your tax liability or reduce your safety standards.”

~ Thom Townsend, Open Ownership

Joe Biden and his team must address the colossal power of the corporate world, which after decades of mergers and acquisitions has become super concentrated into the hands of monopoly corporations in virtually all sectors…it ranks alongside all the other huge priorities facing the incoming administration, including climate crisis and tackling inequality and restoring trust in democracy.”

~ John Christensen, Tax Justice Network

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Corporate profit misalignment: An analysis of German parent companies and their foreign affiliates

Guest blog by Sarah Godar, Research Associate at the Berlin School of Economics and Law

Despite numerous data challenges, economists have established that the multinational corporations’ reported profits are not well aligned with their economic activity across countries. However, uncertainties remain about the extent and patterns of this misalignment. In our recently published research article with Petr Janský, we analyse data on German-based multinational corporations and their foreign affiliates collected by the Deutsche Bundesbank. We find that the world’s tax havens attract a considerably higher share of German multinational corporations’ profit than economic activity, while in Eastern European countries, most developing countries and some big European countries reported profits are much lower than economic activity would suggest.

How do we measure corporate profit misalignment?

The term ‘misaligned profit’ describes the share of profits reported in a country that is not in line with the share of economic activity reported in the respective country. We compute each country’s share in the total profits of the sample and compare it to each country’s share in total economic activity measured in terms of number of employees, tangible and intangible assets, and turnover. We also use a measure of activity (‘CCCTB’) which is weighted one-third tangible and intangible assets, one third turnover and one-third number of employees. This is similar to the formula proposed by the European Commission for the Common Consolidated Corporate Tax Base (CCCTB). However, due to data limitations our CCCTB measure does not exactly correspond to the European Commission’s proposal. For example, we cannot split the factor ‘employees’ between remuneration costs and number of employees and we cannot distinguish between tangible and intangible assets in our data.

If actual profits are higher than what would be estimated based on the share of economic activity, this gives rise to ‘excess’ profit. If actual profits are lower than what would be estimated based on economic activity, this gives rise to ‘missing profit’. In order to measure the overall scale of misalignment, we compute how much profit is in the ‘wrong’ place by adding up the “excess profit” of jurisdictions where there is no concomitant economic activity.

For our analysis, we use data collected by the Deutsche Bundesbank, which include confidential data on foreign direct investments from the Microdatabase Direct Investment (MiDi) and a combination of confidential and publicly available balance sheet data from the JANIS database. Our main sample includes on average 1236 German parent companies per year with 5047 foreign affiliates in 178 jurisdictions for the years 1999-2016. About 60 per cent  of observations stem from the manufacturing sector, and about 30 per centfrom the service industries.

How large is the misalignment of reported profits and economic activity in total and by country?

Figure 1 depicts the share of global profits that would need to be reported in other jurisdictions in order to be aligned with economic activity on average for the years 1999-2004, 2005-2010, and 2011-2016.

We find that the scale of misalignment varies depending on the factor that we use to proxy economic activity. Global profit misalignment has risen when measured in terms of assets and turnover but not in terms of employees. When we look at the yellow column which combines of all three factors, we see no clear trend of the scale of misalignment. It has rather remained stable over time at about 10 to 13 per cent of total reported profits.

When we look at the distribution of misalignment across countries, our results are broadly in line with the literature: High-tax countries and most developing countries are missing-profit countries, while the world’s tax havens attract a considerably higher share of profits than economic activity. The Netherlands are the most notable example with about 80 per cent of reported profits being misaligned with economic activity, closely followed by the other tax havens which had to be grouped together due to the confidentiality requirements. Interestingly, the remaining EU tax havens are still more important for German MNCs than the rest of the world’s tax havens. The other excess-profit countries are mostly resource-rich countries from the Middle East, Australia and Argentina. The classification of China as an excess-profit country is puzzling. It might be explained by the exceptional combination of low cost of labour and capital combined with increasingly high value-added activities which we cannot control for in our approach. Another surprising result is the classification of all Eastern European countries as missing-profit countries despite their very low corporate tax rates.

Our results do not allow for a clear classification of Germany as an excess or missing-profit country. This is because the relative weight of misalignment is relatively low (only 2 per cent of total gross profits according to figure 2) and outcomes are not consistent over time, differ by activity factor and by the tax rate measure we use in order to compute the pre-tax profits. This is surprising as many studies find that multinational corporations shift profits out of Germany which would be consistent with Germany being a missing-profit country. However, note that we explicitly analyse a sample of German parent companies which does not include the German-based affiliates of foreign mutlinationals. Our results might thus be in line with a headquarter bias in profit shifting, in the sense that parent companies rather shift profits in between affiliates in order to minimize their global tax payments but do not necessarily shift profits out of headquarters or do so to a lesser extent. This would be in line with the results by other researchers who find that European multinational corporations are reluctant to shift profits away from their headquarters.

Our data suffers from several limitations. There is a lack of data on pre-tax profits and compensation of employees of foreign affiliates. As mentioned before, we are not able to distinguish between tangible and intangible assets which probably leads to an underestimation of misalignment. Further, our sample might not be representative of the whole population of German-based MNCs. Still, we think that – in the absence of representative data on MNCs and in particular on domestic MNCs – researchers can combine information from different pieces of data as a second best.

Conclusion

We analyse a sample of German-based parent companies and their foreign affiliates and find that about 10 to 13 per cent of reported profits are misaligned with economic activity. The distribution of „missing“ and „excess“ profits follows typical patterns: We find greater profits than activity reported in tax havens, and less profits than activity in developing countries, big high-tax countries and in all Eastern European countries despite their very low tax rates. Our results do not provide an indication of excessive profit shifing from German-based parent companies to their foreign affiliates but would be consistent with significant profit shifting activities between affiliates. This might indicate that foreign affiliates are more relevant in multinationals‘ strategies of tax minimisation. Due to our descriptive approach, we are not able to attribute the observed extent of misalignment to particular reasons. Profit shifting is only one of several possible explanations. Still, the outstanding role of the world’s tax havens in our sample points in this direction and thus requires further explanation.

Paying for the pandemic and a just transition

The Transnational Institute has just published a report setting out ten proposals to mobilise resources to cover the cost of the global COVID-19 pandemic and to pay for the transition away from the fossil fuel economy. As the report points out in its conclusion, the multiple crises facing both the global North and the global South have shifted the Overton window of what is economically feasible. And as the report also makes clear, the means for building back better are readily available provided governments are prepared to take bold measures to, for example, tax wealth and corporate profits, reform fossil fuel subsidies, tax carbon, cancel debt, and achieve the UN sustainable development goals.

On the expenditure side the report identifies six priority areas of what might, in the words of economist Jayati Ghosh, shape “a global multicoloured new deal: red, green and purple.” These expenditures are summarised as follows:

To resource these expenditures TNI identifies ten proposals, most if not all of which will be familiar to readers of this blog, including a global wealth tax; a tax on income from wealth held through offshore structures; an excess profits tax; reforming corporate income tax; a financial transactions tax; removing fossil fuel subsidies, and so on. As the diagram below suggests, the potential revenues from these proposals are more than sufficient to pay for the expenditures identified above:

The core message of this report is that the gravity of the multiple crises facing humanity requires entirely new economic, political and cultural models that place care for humans, and for planetary life, above the pursuit of profit. If we are to meet the challenge of building back better, the resources to achieve this better future are to hand – “so long as the rich and powerful are made to pay”.

You can access the full TNI report here

New publication on beneficial ownership transparency for companies listed on the stock exchange

This new paper describes why beneficial ownership regulations shouldn’t exempt companies listed on a stock exchange. Securities’ disclosure regulations are not adequate for identifying beneficial owners. In addition, definitions are subject to loopholes that affect identifying all relevant end-investors.

As assessed by the Tax Justice Network’s Financial Secrecy Index and summarised by our paper on the 2020 State of Play of Beneficial Ownership Registration, more than 81 jurisdictions have approved laws requiring beneficial ownership to be registered with a government authority. However, many legal frameworks (including the EU Anti-Money Laundering Directive) exempt listed companies from the scope of beneficial ownership registration, based on what we consider to be a wrong interpretation of the Financial Action Task Force recommendations.

The exemption benefitting listed companies is usually based on the fact that some other regulator, eg the securities or financial regulator or the stock exchange, is supposed to already have that information. However, this brief looks at securities regulations available in some countries, eg the US and the UK, showing that securities regulation doesn’t necessarily cover beneficial ownership information.

In the case of the US, the Securities Exchange Commission (SEC) has form 13D which is even called “beneficial ownership report”. However, it doesn’t necessarily refer to a natural person (which is the key element of the beneficial ownership concept according to the Financial Action Task Force and the OECD’s Global Forum).

Other countries, eg Ecuador, India and the Philippines do cover natural persons when requiring listed companies to identify their beneficial owners. Nevertheless, thresholds are too high to be able to identify all relevant investors.

This brief explains why we need a comprehensive approach to beneficial ownership registration to ensure that all legal vehicles, including those involved in passive investments, are subject to proper transparency. The brief also proposes measures to address the challenges, including our previous paper on the secrecy that surrounds listed companies and investment funds.

Download the brief here.

If you have comments or other proposals on how to address these secrecy risks, please contact Andres Knobel at andres@taxjustice.net