Until now, the tax justice and climate justice movements have mostly tended to operate in isolation from each other, despite having many common goals and objectives. This is the second in a series of blogs examining underexplored issues at the intersection of tax justice and climate justice. At the heart sits seeking to redress historic and ongoing inequalities in the exploitation of planetary carbon boundaries, and in the unfair distribution of ongoing human costs. Carbon tax justice uses progressive policies to uncover and reduce inequalities, significantly reduce emissions and facilitate a just transition.
In this blog we explore how climate justice and tax justice advocates can unite and demand beneficial ownership transparency for sectors prone to climate crimes.
As the Tax Justice Network has previously noted, the climate crisis and financial secrecy are closely connected. Immense pressure and a set of policies are urgently needed to disincentivise companies from further investing in fossil fuels – but this pressure should not stop at the level of the company. It has to cast a shadow over the beneficial owners of these companies, too. Tax justice principles can help – in particular, beneficial ownership transparency and eventually, a global asset registry. The sooner climate and tax justice activists unite and demand beneficial ownership transparency, the more urgently we can put an end to escalating climate crimes like illicit fishing and logging.
~ Who owns the climate crisis?
Climate crimes threatening our carbon sinks
Oceans and forests are sometimes referred to as carbon sinks: a natural environment with the ability to absorb carbon dioxide from the atmosphere. They form an important part of the natural carbon cycle.
But our carbon sinks are threatened by climate crimes, including illegal, unreported and unregulated fishing, illicit mining, and illicit logging and forest clearances, all of which are accelerating at a fast pace.
From fish and forests to illicit financial flows
These environmental or ‘climate crimes’ not only threaten the capacity of our carbon sinks to absorb greenhouse gases, they generate profits that result in illicit financial flows: a form of illegal capital flight that occurs when money is illegally earned, transferred, or spent. Illegal, unreported, and unregulated fishing alone is estimated to account for up to US$23.5 billion annually in illicit financial flows. West Africa is particularly heavily affected, accounting for US$9.4 billion – 40 per cent – of that. Illegal logging and illegal forest clearances account for between US$52 – US$157 billion annually in terms of illicit financial flows. Between a third to half of the timber trade is estimated to constitute illicit financial flows. Furthermore, crops grown on recently deforested land account for a large share of key agricultural commodities like soy, beef, palm oil and cocoa.
In their study on illegal, unreported, and unregulated fishing and illicit financial flows, the Financial Transparency Coalition could only locate beneficial ownership data for 16.7 per cent of the 972 vessels studied. These findings are also reflected at a country level. For example, vessels with licences in Argentina need to be registered at the Argentinian company registry, but they do not need to disclose the ultimate beneficial owner(s). The financial secrecy surrounding the owners of vessels is a key driver of illegal, unreported, and unregulated fishing as secrecy makes it harder to catch the ultimate perpetrators. Beneficial ownership information is rarely, if ever, collected during the licensing or vessel registration process, with only information on the legal owner being collected.
In the fishing sector, it is therefore vital to know who owns the fishing vessel in question, including having historical records to know who owned it at the time of an offence. Although private registries like Lloyd’s Shipping Registry do collect this information to some extent for insurance purposes, it is rarely collected by public authorities.
Similar concerns are apparent in the forestry sector, where information on land ownership and ownership of livestock and crops grown on the land are missing, limiting our understanding of both the extent of illicit financial flows, and the beneficial owners who benefit from them. Not too dissimilar from fisheries, in the forestry sector, some data on livestock and crops might be collected for agricultural policy issues and insurance purposes, but not for money laundering or tax purposes, perhaps because their role in terms of illicit financial flows have largely been underestimated. What is needed are better land, livestock and crop registries. To make such registries usable, they need to be publicly accessible and contain a level of detail that would allow them to be used to detect money laundering, tax abuses and other types of illicit financial flows.
Transparency of beneficial ownership
A key driver enabling the perpetuation of climate crimes in the first place is the cloak of secrecy surrounding those ultimately responsible: the owners, funders and general masterminds. They are often able to funnel their illicit profits back to their shareholders in countries where companies linked with illegal, unreported, and unregulated fishing are based. This includes China, Colombia, and Spain, where the top 10 companies are based according to a report by the Financial Transparency Coalition.
We need to ensure that beneficial ownership legislation in various countries is truly set out to reveal the real beneficiaries of climate crimes. Fisheries companies for example often use complex corporate structures to hide the real owners of vessels, and can hide behind the 25 per cent threshold for reporting beneficial owners in Europe. All natural resource sectors, including fisheries and forestry, should be defined as high-risk sectors for the purpose of beneficial ownership registries with lower thresholds (or, ideally, no threshold) for reporting of beneficial ownership.
Using a global asset register to link assets to beneficial owners
Linking environmental crimes and public beneficial ownership registries would go a long way in establishing an enabling environment to tackle the environmental and social fallout caused by these illegal activities. The existence of a public beneficial ownership registry on its own, however, is not a sufficient solution to hold those responsible for illicit fishing and logging accountable, including outside the country where activities take place.
By providing a centralised global resource detailing who owns what, and where they own it, a global asset register would provide a means to record, measure, and understand the distribution of global capital, including those assets that enable or perpetuate damage to carbon sinks.
By imposing meaningful transparency on this wealth, a global asset register would not only identify beneficial owners who are extracting natural resources to accumulate personal wealth and power. Alongside other existing transparency mechanisms like the automatic exchange of information and country by country reporting, it would also strike a decisive blow against international organised crime by significantly reducing the opacity that is crucial to the continued functioning of illicit financial flows.
Viewing climate crimes as predicate offences for money laundering
A country’s jurisdiction is generally limited to its own geographical area. One exception lies in the application of anti-money laundering provisions. They give countries more powers to seize assets used in the production of illicit income, or acquired with this illicit income. This makes anti-money laundering provisions a particularly powerful tool in curbing climate crimes.
Money laundering provisions rely heavily on “predicate offences”- in essence, anything illegal that generate the proceeds that are then laundered. Illegal, unreported, and unregulated fishing and illicit logging are predicate offences for money laundering – they generate income that somehow needs to be accounted for in mainstream financial systems, in a way that hides their opaque origin. Climate crimes generate precisely this kind of illicit income and should be defined as predicate offences. This would enable the use of anti-money laundering legislation, including extra-territorial accountability for perpetrators and the beneficial owners.
Illicit fishing is for the most part not recognised as a natural resource crime or a predicate offence for money laundering purposes – but it should be. It’s doable: the USA, for instance, was able to successfully freeze a beneficial owner’s assets, and delist it from the Nasdaq, after the Financial Transparency Coalition ranked it as the biggest global culprit in illicit fishing.
Conclusion
Tax justice and financial transparency activists have lobbied for a number of measures that would go a long way in curbing natural resource crimes. These include linking offenders on the ground to those who ultimately profit, through beneficial ownership registers and global asset registers; and being able to pursue offenders across jurisdictions by classifying natural resource crimes as predicated offences for money laundering purposes. These measures are key to combatting illicit financial flows related to natural resources – including fisheries, forestry and mining-related crimes and abuses.
Defining income from natural resource crimes as illicit financial flows, and consequently as predicate offences for money laundering opens up avenues to advocate for public beneficial ownership registries in source, transit and destination jurisdictions. Countering natural resource crimes requires public access to beneficial ownership registries, and would enable holding those responsible, accountable.
Achieving carbon tax justice is possible. We can start by holding to account those profiting most from the climate crisis. But to do so, we need transparency.
O mundo segue perdendo pelo menos 480 bilhões de dólares para os abusos fiscais, de acordo com relatório “Estado da Justiça Fiscal 2023”. Uma convenção tributária nas Nações Unidas é uma das maneiras recomendadas pela Tax Justice Network e outras justiceiras fiscais para que o mundo pare de perder recursos para paraísos fiscais.
América Latina, Caribe e África conseguirão que a ONU seja um espaço realmente inclusivo e democrático para reformar a tributação e o sistema financeiro internacional? O episódio #52 do É da sua conta traz os resultados da Cúpula Latinoamericana e Caribenha, que aconteceu em junho de 2023, e explica o papel do bloco africano para levar a questão tributária às Nações Unidas.
“O Estado da Justiça Fiscal 2023”: Florencia Lorenzo traz os valores perdidos por Brasil, Angola, Moçambique e América Latina ao abuso fiscal e as recomendações da Tax Justice Network para por um fim a estes abusos;
Governos brasileiro e chileno avaliam a importância da Cúpula por uma tributação global e da Plataforma Tributária Latinoamericana e Caribenha para reformas tributárias dentro de seus países;
Jefferson Nascimento (Oxfam Brasil) faz uma análise de como a sociedade civil participou e entende a contribuição da Plataforma LAC para o fortalecimento da justiça fiscal na região;
A maior parte dos países do Caribe NÃO são paraísos fiscais, desmistifica Gabriel Casnati (Internacional Serviços Públicos);
União África-América Latina e Caribe pode ajudar a combater lobby da OCDE e de empresas multinacionais em favor de uma Convenção Tributária Internacional, acredita Idriss Linge (Tax Justice Network).
~ Convenção na ONU pode conter $480 bi de abusos fiscais #52
“Componentes centrais estruturais do sistema que rege a tributação internacional tem falhado uma e outra vez e por isso essa edição do Estado da Justiça Fiscal 2023 tem essa chamada muito importante para produzir reformas substanciais nas regras e instituições que governam o sistema tributário internacional.“ ~ Florencia Lorenzo, Tax Justice Network
“Nossos governos estão comprometidos domesticamente com as reformas tributárias necessárias para a redução das desigualdades, mas também estão ativamente atuando internacionalmente no debate de redução da evasão fiscal, do combate aos paraísos fiscais, de um sistema tributário internacional que seja capaz de realmente promover o desenvolvimento sustentável, social e ambientalmente.” ~ Guilherme Mello, Secretaria de Política Econômica do Ministério brasileiro da Fazenda
“O relatório da Tax Justice Network focou na democratização do debate tributário, principalmente na ampliação do debate dos espaços multilaterais e de alguma maneira a Plataforma representa parte desse objetivo; a gente tem que continuar dando os passos nesse processo, ainda em construção” ~ Jefferson Nascimento, Oxfam Brasil
“Trabalhadores caribenhos não se beneficiam desses paraísos fiscais e instam para que países latinoamericanos não se baseiem nas listas feitas pela Europa e abram caminhos para mais cooperação e negócios com os países do Caribe. ” ~ Gabriel Casnati, Internacional dos Serviços Públicos
“Se o dinheiro (recuperado dos abusos fiscais) estiver lá, governos terão de utilizá-lo para melhorar o acesso à escola, à energia, à escola para as meninas, à saúde, casas a preços acessíveis; resumindo o acesso aos Objetivos de Desenvolvimento Sustentável.” ~ Idriss Linge, Tax Justice Network
Saiba Mais:
Recomendações da sociedade civil para ministros na Cúpula Latinoamericana e Caribenha por uma Tributação Global inclusiva, sustentável e equitativa.
Dan Neidle, a tax lawyer who recently retired from the multinational law firm Clifford Chance, and Richard Murphy, a professor of accounting practice at Sheffield University who resigned as a member of the Tax Justice Network in 2007 and as Tax Justice Network company secretary in 2009, have republished their criticisms of the Tax Justice Network’s State of Tax Justice 2023. While we have previously provided a point by point explanation of the errors on which these criticisms rest, we are always keen to engage with other views. Below we summarise the criticisms and again provide responses, but first we deal with the main concern raised.
The State of Tax Justice reports how much tax countries lose to two types of cross-border tax abuse: offshore tax evasion by individuals and corporate tax abuse by multinational corporations. The primary claim against the State of Tax Justice is that the report overestimates the scale of hidden wealth held offshore by individuals in its calculations.
This is also the primary error in the criticisms, because the State of Tax Justice report does not calculate the scale of hidden offshore wealth. The estimate on the scale of hidden offshore wealth used in the report, as set out in the methodology, is sourced from a separate study commissioned by the European Commission and carried out by ECORYS, a respected research institute. The estimates from ECORYS are widely regarded as the best available estimates on the scale of hidden offshore wealth.
The ECORYS study uses an established methodology initially developed by the economist Gabriel Zucman, in his 2013 paper published in the leading Quarterly Journal of Economics.
What the State of Tax Justice report does calculate is the distribution of hidden offshore wealth, rather than the scale. That is, the report evaluates where the wealth hidden offshore should be declared for tax purposes, not how much wealth is hidden offshore. This is the report’s original contribution to the field. The report applies its evaluation of distribution to ECORYS’s calculation of scale to determine how much tax each country loses to offshore tax evasion.
In its other component, the State of Tax Justice does calculate the scale of corporate tax abuse using the now well-established “misalignment methodology.” Almost all criticism raised against the State of Tax Justice has focused on the scale of hidden offshore wealth used in the report, however, which, as stated, is sourced from ECORYS.
This fundamental misunderstanding of the State of Tax Justice’s methodology unfortunately forms the basis of almost all the claims raised against the report. On top of this, many of the claims also attack assumptions that are simply not made, despite the actual assumptions being documented in the methodology paper.
Estimating the impacts of behaviour that is deliberately hidden is of course challenging, and we are always open to critical comments and inputs in good faith. We recently identified a coding error in our own analysis, for example, and have issued a full and prominent correction. We are committed to improving the technical quality of the analysis upon which policy debates are based. Having robust evidence is far too important to justify defending an error.
In the case of the current criticisms, however, the Tax Justice Network publicly responded some years ago, and demonstrated in detail that the criticisms were insubstantial and often based on an erroneous understanding of our methodology. Nonetheless, these debunked criticisms of our report continue to be repeated, and have even been used by lobbyists to misdirect media. One critic even linked to our previous detailed response while claiming we had never responded(!).
Most recently, Cayman Finance has quoted these criticisms in an attempt to discredit our research – something Cayman Finance has done in the past, and to which we also responded at the time.
In light of this, we are again providing below an explanation of the errors that underpin these claims. As always, we invite further discussion should there be substantive points.
Breakdown of claims
Claim: The State of Tax Justice’s calculation of the scale of hidden offshore wealth is too high.
Fact: The State of Tax Justice does not calculate the scale of hidden offshore wealth. The report calculates the distribution of hidden offshore wealth, that is, where the wealth hidden offshore should be declared for tax purposes, not how much wealth is hidden offshore. The estimate on the scale of hidden offshore wealth used in the report is sourced from a separate study commissioned by the European Commission and carried out by ECORYS.
The ECORYS study concludes that the scale of hidden offshore wealth is 11.4% of global GDP. The ECORYS study uses an established methodology initially developed by Gabriel Zucman, in his 2013 paper published in the Quarterly Journal of Economics, which is one of the most highly-ranked economics journals in the world. Zucman recently received for his work on tax the John Bates Clark medal, a major prize given to an economist under the age of forty who is judged to have made a significant contribution to economic thought and knowledge.
For estimates of GDP, the State of Tax Justice sources data from the World Bank. Where World Bank GDP data is not available for a country, GDP data is used from the UN. If UN data is also not available, GDP data is used from the CIA.
The State of Tax Justice applies its evaluation of the distribution of hidden offshore wealth to ECORYS’ calculation of the scale of hidden offshore wealth to determine how much tax loss each country suffers to offshore tax evasion.
While the estimates from ECORYS used in the State of Tax Justice report are widely regarded as the best available estimates on the scale of hidden offshore wealth, there remain a number of limitations in these estimates. These stem largely from the limited availability of data on secretive offshore practices. The State of Tax Justice discusses and take several steps to address these limitations in the methodology.
However, the criticisms raised by Dan Neidle and Richard Murphy do not address the limitations in ECORYS’s estimates nor Gabriel Zucman’s method, but stem from a gross misunderstanding of what the State of Tax Justice’s methodology is evaluating.
Claim: The State of Tax Justice makes several false assumptions in its methodology, which result in the report overestimating the scale of hidden offshore wealth.
Fact: The State of Tax Justice’s methodology does not make the assumptions it is accused of making, as is clearly evidenced by the methodology paper. These erroneous claims also mistake the State of Tax Justice’s methodology for evaluating the distribution of hidden offshore wealth, for a methodology for calculating the scale of hidden offshore wealth (which is actually calculated by ECORYS, and also does not make the claimed assumptions).
See claims on assumptions
Claim: The methodology ignores the impact of FATCA/CRS on hidden offshore wealth.
Fact: The methodology accounts for the impact FATCA/CRS, which ECORYS’s study finds had no material impact on the scale of hidden offshore wealth.
The Common Reporting Standard (CRS) and the US’s Foreign Account Tax Compliance Act (FATCA) are two forms of automatic exchange of information: a data sharing process designed to expose corporations and individuals whenever they hide money in foreign banks to appear less wealthy to their governments and underpay tax.
The CRS is based on a reciprocal exchange of information between countries, which more than 100 jurisdictions are participating in today. FATCA is based on a one-way flow of information, which sees countries share information with the US in return for ensuring their financial institutions retain access to US markets.
The Tax Justice Network was an early advocate for automatic exchange of information and continues to campaign for more robust and effectives forms of the transparency measure on a range of financial assets.
The CRS was approved in 2014, and exchanges between countries first began in 2018. FATCA was enacted by US Congress in 2010.
It has been claimed that the State of Tax Justice has failed to take into account the impact of CRS exchanges beginning in 2018.
This claim is based on the hypothesis that the start of CRS exchanges in 2018 resulted in the dramatic reduction in the scale of undeclared offshore wealth, to a level far below that used in the State of Tax Justice assessment.
This hypothesis, however, was already proved false in 2021. The scale of hidden offshore wealth in 2018 following the start of CRS exchanges remained at 11.4 per cent of global GDP, as estimated by ECORYS, compared to 11.6 per cent in 2017, as estimated by Alstadsaeter, Johannesen and Zucman in a study published in the highly-regarded Journal of Public Economics.
The ECORYS study looks specifically at the introduction of the CRS. In common with other studies, they find a relatively concentrated drop in the holdings of bank accounts in smaller “international financial centres” (for the EU, the volume of such bank deposits falls by 8 per cent between the first quarter of 2017, and the third quarter of 2019). It is the value of other offshore assets, and of equity holdings in particular, that results in ECORYS estimating much higher tax losses for EU countries in 2017 and 2018 than any year since their analysis begins in 2004.
While the evaluation of the distribution of country-level tax losses in the State of Tax Justice report follows a different methodology, the results are broadly consistent with the ECORYS finding that FATCA/CRS had had an immaterial impact on overall EU losses to offshore tax evasion. As ECORYS note, there are a multitude of asset types (including real estate and a range of financial assets) as well as ownership structures (including loans and equity through interposed companies) that are not subject to information exchange and are commonly used by wealthy individuals.
In short: the estimate on the scale of hidden offshore wealth calculated by ECORYS does include the impact of FATCA/CRS, and so these are accounted for by the State of Tax Justice. It’s just the impact has been minimal, at least up to the year of the data in question.
This weak impact is something that the Tax Justice Network and other researchers had warned of, and have explored and highlighted at some length. One reason is that the US does not participate in information exchange, and this has led to undisclosed bank deposits moving from smaller tax havens to the US as we predicted. Another is that the CRS is too limited in scope, and a lot of new financial products have been created to be non-reportable under FATCA and CRS.
If anything, it is possible that the narrowness of FACTA/CRS’s scope of coverage has increased the attraction of the portfolio assets covered by ECORYS, since these are not reportable. This is likely to include financial accounts (or very close substitutes) which have been specifically designed and marketed as non-reportable under FATCA and CRS. In defence of the CRS, the overall lack of impact in reducing tax losses does cover some reduction in undeclared offshore accounts; only that this is offset elsewhere, including by rising equity prices in 2017-18.
An academic paper by two Tax Justice Network researchers on the effectiveness of automatic exchange of information (AIE) arrives at three findings:
“First, we find that more secretive jurisdictions manage to keep more of the secrecy they supply to other countries uncovered by AIE via engaging in a strategy of selective resistance. Among those highly secretive jurisdictions, the OECD’s dependent territories play a crucial role. Second, we report that OECD countries are better than other countries at using AIE to target their most relevant secrecy jurisdictions. Third, we show that EU member states are better at targeting their most relevant secrecy jurisdictions with AIE rather than by means of blacklisting. Overall, our findings suggest that hypocrisy lies at the core of both the OECD AIE system and the EU’s blacklisting exercise.”
And on the effectiveness of global financial transparency more widely, an academic paper published this year by Petr Janský, Dariusz Wójcik and the Tax Justice Network’s Head of Research Miroslav Palanský finds:
“They [findings] do, however, show that while OECD countries are relatively more transparent, their former colonies, with continued links with and dependency on former colonial powers, exhibit little improvement. Put together, our findings show that while some progress towards global financial transparency has been achieved, it is shallow and very uneven, with convergence potentially replacing a race-to-the-bottom dynamic.” This is not to say that CRS has not been successful in providing some countries with transparency about certain types of financial accounts, and that is why the Tax Justice Network had long campaigned for the introduction of such multilateral measures. But the narrowness of the OECD approach, coupled with the noncompliance of the US and the effective exclusion of most lower income countries, means that a great deal of offshore wealth remains entirely hidden from tax authorities.
The methodology uses data from the Bank for International Settlements on offshore bank deposits to help determine the distribution of hidden offshore wealth. The Bank for International Settlement does not distinguish between personal deposits and corporate deposits in this data.
It has been claimed that the State of Tax Justice’s methodology does not make this clear about the data and instead assumes all deposits captured in this data to be personal deposits. This would mean the methodology treats all these bank deposits as belonging to individuals, and so overestimates the scale of wealth hidden offshore by individuals by lumping in bank deposits that actually belong to corporations.
The methodology, however, does explicitly explain that the data from the Bank for International Settlements does not distinguish between personal and corporate deposits, and goes on to explain how this data limitation is dealt with. The methodology is clear that the bank deposits captured in the data from the Bank for International Settlements do not all belong to individuals, and they are not treated as such by the report.
In addition, this data from the Bank for International Settlements is not used to calculate the scale of hidden offshore wealth, as it is claimed. The data is used to help determine the distribution of hidden offshore wealth, in other words, to attribute these bank deposits to their origin countries. While the data cannot readily indicate which offshore bank deposits belong to individuals and which belong to corporations, it does show which offshore destinations are most popular for wealth coming out of different countries, whether that wealth comes from individuals or corporations. This geographical pattern revealed by the data can be expected to be similar for both personal and corporate deposits as the pattern is often informed by regulations, treaties, service providers and legal structures in place in countries and in between countries. (We would welcome new research that identifies any specific patterns in relative shares of offshore deposits of individuals and corporations, by country of residence. At present, however, we do not see a basis to vary from the assumption that the ratio of individual to corporate deposits considered to be uniform across residence jurisdictions.)
The use of the data from the Bank for International Settlements in this way to determine distribution of hidden offshore wealth follows the method published in the highly-regarded Journal of Public Economics in 2018 by Alstadsaeter, Johannesen and Zucman.
Claim: The methodology does not recognise that there may be valid commercial reasons for some abnormal deposits.
Fact: The methodology allows for genuine commercial reasons by identifying only abnormally high levels of deposits that are associated with the highest levels of bank secrecy.
The State of Tax Justice does identify a pattern of “abnormal” bank deposits across jurisdictions. This means determining what share of the offshore bank deposits going into a jurisdiction can reasonably be explained by the level of genuine business activity going on in the country, and what share if any cannot.
We do not look only at the size of each jurisdiction’s economy, however (their GDP, or gross domestic product), but also at how secretive their regulations are. We identify 30 jurisdictions that are both relatively highly secretive, and also receive bank deposits far greater than can be readily explained by their economic activity. These 30 jurisdictions account for only 7 per cent of global GDP but are destinations for over 45 per cent of all offshore bank deposits.
We conduct a regression analysis on the rest of the jurisdictions in the world to determine a “normal”, or expected, relationship between bank deposits coming into a country and the country’s GDP, specifically in the case where the jurisdictions do not offer high bank secrecy.
This is shown in Figure 5, taken from the methodology. Jurisdictions with lower bank secrecy are shown as dark dots, and the strength of the relationship between deposits and GDP is clear (the dotted line shows the fitted model). Jurisdictions with high bank secrecy and abnormally high levels of deposits, are shown as clear circles and with 3-digit ISO codes (for example, CYM is Cayman and LUX is Luxembourg).
The regression allows us to identify a baseline for a normal level of offshore bank deposits coming into a country. The further jurisdictions offering bank secrecy appear above this line, the greater the probability we estimate that these deposits are undeclared to home country tax authorities. Because tax abuse is deliberately hidden, it is impossible to prove definitively that all deposits identified as abnormal here (exceeding this baseline) are undeclared. Some genuine economic activity may in fact be included. But bank secrecy is necessary to hide deposits, and the evidence here shows clearly that the provision of bank secrecy dominates the revealed pattern of abnormal deposits between jurisdictions. This supports the conclusion that this pattern of abnormal deposits provides a reasonable approximation for the distribution of undeclared offshore wealth.
Claim: The methodology assumes a 5% return on cash deposits.
Fact: The methodology does not assume a 5% return on cash deposits. The methodology assumes a 5% return on investments, in line with established research.
When calculating how much tax should have been paid on wealth hidden offshore by individuals, the methodology assumes hidden investments make a 5 per cent return. A personal income tax is then applied to this 5 per cent to determine how much tax was missed out on in the country where that offshore investment originally came from.
The assumption of a 5 per cent return on investments is directly sourced from a 2015 study by Gabriel Zucman. The methodology applies Zucman’s assumption of 5 per cent return to investments only. At no point does the methodology state otherwise. The methodology does not at any point specifically consider cash deposits.
The erroneous claim that State of Tax Justice’s methodology assumes a 5 per cent return on cash deposits, and that this contributes to an overestimating of the scale of offshore tax evasion, was made by Richard Murphy. Prof Murphy directly quotes our methodology when making this claim – even though the quoted line from our methodology clearly states the assumption relates to investments.
Screenshot from Richard Murphy’s 21 July 2021 blogLess detail▲
Claim: Corporate tax rates instead of personal income tax rates should be applied to some abnormal bank deposits.
Fact: The appropriateness of corporate tax rates is debatable and there is good reason to use personal income tax rates, as explained in our methodology.
When calculating how much tax countries lose to offshore tax evasion by individuals, we assume individuals would have paid personal income tax rates on the return they gain from the wealth they hid offshore.
Personal income tax rates are usually higher than other types of tax rates, like corporate tax rates and capital gains tax rates. It is possible that the return gained from wealth hidden offshore, if it were taxed instead of evaded, could have been taxed under a corporate tax rate if that return took the form of profit from a corporation or taxed under a capital gains tax rate if the government taxes dividends differently from personal income.
Using personal income tax rates it then follows to estimate how much tax countries lose to offshore tax evasion may put estimates on tax losses on the upper-end of the scale. The State of Tax Justice’s methodology considers this issue in detail.
Ultimately, we decide to use personal income tax rates for two reasons.
First, although in theory the methodology considers a full range of assets when looking at hidden offshore wealth, in practice the numbers are driven by financial account holdings, to which personal income tax rather than capital gains tax would generally apply.
Second, it can be argued that if the returns were actually declared for tax purposes, rather than hidden offshore, individuals would have an incentive to minimise their tax obligation by structuring their returns as capital gains rather than as individual income. In other words, when assuming what individuals would have paid if they did not evade tax, we should still they would have sought to abuse tax by utilising tax avoidance schemes. Therefore it is more appropriate to use a capital gains tax rate since this what would be applied under a tax minimising scheme. However, since the State of Tax Justice seeks to report how much tax countries would have collected if corporations and individuals paid the right amount of tax, in the right place and at the right time – in other words, if tax abuse and tax evasion was stopped – it is more appropriate to estimate how much tax would have been paid under personal income tax, rather than capital gains tax.
Lastly, it can also be argued that the existence of cases such as Italy where a lower rate than personal income tax would apply to income streams from declared offshore assets might suggest making more conservative adjustments on a country by country basis, and we will consider this for future work. We note, however, that even in such a case, the very existence of the hidden offshore wealth is the result of an originally undeclared income stream. For that reason, applying the higher personal income rate to a hypothetical income stream generated by the hidden offshore wealth – rather than to the original income stream that generated the hidden offshore wealth itself – will understate the total tax losses very substantially. (For comparison, the ECORYS study referred to above obtains a significantly higher estimate of tax losses, by evaluating a combination of tax evasion of taxes on capital income; of taxes on inheritance and wealth; and of personal income taxes on original income transferred offshore.)
Claim: The methodology’s calculation of the scale of hidden offshore wealth is based on undisclosed offshore bank deposits. These bank deposits would have actually been disclosed under FATCA/CRS and so the calculation is incorrect.
Fact: The estimate on the scale of hidden offshore wealth used in the report is sourced from ECORYS, which bases its estimate on a much wider range of assets than that covered by FATCA/CRS.
As has already been explained several times above, the estimate on the scale of hidden offshore wealth used in the report is sourced from a separate study commissioned by the European Commission and carried out by ECORYS. The estimates from ECORYS are widely regarded as the best available estimates on the scale of hidden offshore wealth.
ECORYS estimates that the scale of hidden offshore wealth stood at 11.4% of global GDP in 2018, which is US$9.9 trillion. GDP figures for 2018 here are sourced from the World Bank, the UN and CIA. ECORYS’s estimate of hidden offshore wealth is based wide range of financial assets, but primarily on undisclosed portfolio investments which are unlikely to be covered FATCA/CRS.
It has been claimed that this US$9.9 trillion figure is produced by the State of Tax Justice’s methodology and is based on wealth the methodology assumes to be hidden offshore in undisclosed bank accounts. This claim points to the US$16 trillion in previously hidden offshore bank deposits that have been disclosed following the introduction of FATCA/CRS. The claim argues that since the State of Tax Justice’s US$9.9 trillion figure is based on undisclosed bank deposits, it cannot be compatible with the US$16 trillion of now-disclosed bank deposits. Simply put, how can there be another US$10 trillion in undisclosed bank deposits out there beyond the US$16 trillion that have been disclosed and how could these escape reporting?
Again, the issue with this claim is that it is based on an incorrect understanding of the methodology. The US$9.9 trillion figure is sourced from an external study which assess a wide range of financial assets beyond those covered by FATCA/CRS, and takes into account the impact of these transparency measures by the year in question.
For this reason, the US$16 trillion recently disclosed under FATCA/CRS does not powerfully affect ECORYS’s estimate. If anything, it is possible that the narrowness of FACTA/CRS’s scope of coverage has increased the attraction of the portfolio assets covered by ECORYS, since these are not reportable. This is likely to include financial accounts (or very close substitutes) which have been specifically designed and marketed as non-reportable under FATCA and CRS. In addition, increases in equity prices increased the level of hidden offshore wealth quite separately from any changes in bank deposits.
Information exchanges under CRS began in 2018 and it has been hypothesised that this has dramatically reduced the scale of undisclosed offshore wealth to a level far below the US$9.9 trillion estimate assumed in the State of Tax Justice report.
This hypothesis, however, was already proved false in 2021. The scale of hidden offshore wealth in 2018 following the start of CRS exchanges remained at 11.4 per cent of global GDP, as estimated by ECORYS, compared to 11.6 per cent in 2017, as estimated by Alstadsaeter, Johannesen and Zucman in a study published in the highly-regarded Journal of Public Economics.
ECORYS’s 2021 study confirmed that FATCA/CRS had had an immaterial impact on the losses to offshore tax evasion monitored by the State of Tax Justice.
The estimate on the scale of hidden offshore wealth calculated by ECORYS takes into account the impact of FATCA/CRS, and so the impact of these transparency measures are accounted for by the State of Tax Justice. It’s just the impact has been minimal.
This is not to say that CRS has not been successful in providing some countries with transparency about certain types of financial accounts, and that is why the Tax Justice Network had long campaigned for the introduction of such multilateral measures. But the narrowness of the OECD approach, coupled with the noncompliance of the US and the effective exclusion of most lower income countries, means that a great deal of offshore wealth remains entirely hidden from tax authorities.
Where the State of Tax Justice does consider both undisclosed bank deposits and undisclosed portfolio investments is its evaluation of the distribution of hidden offshore wealth, not the scale of hidden offshore wealth, as repeatedly explained above. This evaluation is used to determine where the hidden offshore wealth estimated by ECORYS originated from.
Claim: The State of Tax Justice’s estimate on the scale of corporate tax abuse is based on a fictitious calculation of tax and is not a measure of profit shifting or tax abuse.
Fact: The State of Tax Justice’s estimate on the scale of corporate tax abuse is based on an established methodology in the field for estimating profit shifting known as the “misalignment methodology”. Similar use of misalignment methodology was made in a 2023 paper by economists Torslov, Wier and Zucman published in the Review of Economic Studies, as well as earlier studies including Cobham & Jansky in Development Policy Review, 2019, and Casella & Souillard in UNCTAD’s Transnational Corporations, 2022. The State of Tax Justice’s estimate on the scale of corporate tax abuse is in line with figures published by other organisations and leading researchers.
The misalignment method contrasts the share of reported profits in a jurisdiction with the share of economic activity in that jurisdiction. It contrasts how much profit a multinational corporation declares in a jurisdiction against how much genuine business activity it does in the jurisdiction (eg how many sales it makes there, how many people it employs there, how many stores, offices or factory it operates in the jurisdiction).
In theory, these two shares should be roughly similar, if our international tax system worked the way it was designed to. The arm’s length principle on which the international tax system is based in theory should take care of aligning reported profits with economic activity, but this principle is flawed and routinely abused by multinational corporations to shift profits to tax havens and underpay tax.
When the G20 group of countries first gave the OECD a mandate to reform international tax rules a decade ago, they agreed a single aim for the work: to reduce this misalignment between where multinationals declare their profits for tax purposes, and the location of their real economic activity. As such, the misalignment approach is the direct assessment of how far tax abuse means that this goal remains unreached.
The misalignment between reported profits and economic activity is overwhelmingly driven by tax rates: multinationals under the current rules are able often to report profits in low tax jurisdictions, while having significant economic activity in other countries. The alternative is to move to unitary taxation with formulary apportionment, which serves as the basic counterfactual in the misalignment methodology.
Unitary tax was also the alternative considered by the League of Nations a century ago, when they took the central decision to reject it in favour of the arm’s length approach that is now widely held to be unfit for purpose. The second OECD process began in 2019 with the organisation committing, finally, to go beyond arm’s length pricing.
Under unitary tax, multinational corporations pay tax based on where their economic activity takes place – ie where they make sales, employ people, produce goods and services – instead of where they report profits – ie instead of where they shift their profits to. Unitary tax requires a multinational corporation’s profits to be divvied up across the countries where it does business, so that each can tax their fair share. This makes tax havens redundant since multinational corporations don’t do much real business in tax havens.
This means when misalignment methodology is measuring the economic activity of multinational corporations across different jurisdictions to compare to where multinational corporations are reporting profit, misalignment methodology is not just estimating the losses the arise out of multinational corporations abusing the arm’s length principle, it’s also putting to practice the principles of unitary tax.
Dan Neidle claims that this approach to calculating corporate tax abuse is fictitious because unitary tax has not been adopted by law in the countries on which the State of Tax Justice reports. Mr Neidle states, “I’m not aware of any proposal that any country should tax on this basis.”
Unitary tax has been at the heart of international tax reform debate for over a hundred years. It now forms the key component of Pillar 1 of the OECD’s two-pillar proposal (multinationals’ profits are assessed at the global level and an element is apportioned according to the location, in this case, of their sales). One of three proposals for Pillar 1 that the OECD Inclusive Framework charged the secretariat with evaluating was the G-24 group of countries’ proposal for a full move to fractional apportionment, a close relation.
Unitary tax has also been gaining more support, for example, as part of the EU’s Common Consolidated Corporate Tax Base (CCCTB) proposals, which have been debated and explored over two decades, and now the Commission’s BEFIT proposals. Certain apportionment approaches are also allowed under even current OECD rules, and major countries including India make use of these without difficulty. In addition, the approach is also well established for use by subnational jurisdictions and has been in application for decades in countries including the United States, Canada and Switzerland.
While we regret that Mr Neidle says he has not heard of any of these proposals, we do not feel that this fact constitutes a substantive criticism of the approach in the State of Tax Justice. And it may only be that these proposals have slipped Mr Neidle’s mind. In 2018, for example, he interviewed the European Commission’s then-Director-General for Tax about the CCCTB. Mr Neidle published a reflection on their discussion, in which he concludes: “This is probably the moment advocates of unitary taxation have been waiting for. The press and public are more focused on tax than ever before. France and Germany are fully backing CCCTB…”.
Although unitary tax has yet to be legally implemented in full internationally, it is by design a solution to the failure of the arm’s length principle. The misalignment methodology captures the extent of this failure, and is the only possible measure of the single, stated goal given to the OECD for its policy reforms over the last decade by the G20 group of countries. As the academic research literature also confirms, this is an entirely appropriate basis on which to assess the scale of tax abuse.
Claim: The Tax Justice Network has ignored criticism of the State of Tax Justice’s methodology, particularly on the impact of FACTA/CRS.
Fact: The Tax Justice Network publicly responded to these criticisms in 2021, demonstrating at the time how FACTA/CRS had no material impact on the reports figures.
Dan Neidle claims, in a blog published 25 July 2023, that the Tax Justice Network has ignored criticism of its methodology. The Tax Justice Network publicly responded to these criticisms in 2021.
Despite claiming in his blog that the Tax Justice Network has ignored criticism, Mr Neidle actually links in Footnote 7 of his blog to our 2021 public response, contradicting his claim.
The footnote dismisses our 2021 public response and erroneously implies again that the estimation of the scale of hidden offshore wealth used in the report is calculated by the State of Tax Justice’s methodology, when it is actually sourced from the ECORYS study. Mr Neidle’s blog does not make any mention of the ECORYS study, nor its conclusions on the impact of FATCA and CRS on its assessment.
Footnote 7 in Dan’s blog states:
“Subsequently, TJN justified their conclusions on the basis that the data showed little change in offshore wealth since FATCA/CRS had been introduced. The obvious explanation is that TJN’s methodology has always been wrong, and FATCA/CRS merely reveals this. TJN, however, prefer to believe that their methodology is correct and the actual measurable outcomes of FATCA/CRS should be discarded.”
The document Mr Neidle links to is sufficient to show his error. The “actual, measurable outcomes of FATCA/CRS” are indeed accounted for and discussed in the ECORYS study which is the underlying source for our estimate.
We share the hope that these arrangements for automatic exchange of financial information will be improved sufficiently to yield a much more visible scale of benefits in reducing undeclared offshore deposits. Indeed, we would not have spent our first decade of existence as an organisation campaigning for this, in the face of OECD opposition, had we not believed in the potential for such progress, on the basis of careful analysis. That hope should not blind us to the fact that in the first year of CRS exchange, the estimates of ECORYS show that undeclared offshore wealth overall is likely to have grown.
Cayman Finance has similarly claimed this week that the Tax Justice Network has not addressed criticism of the State of Tax Justice: “The latest State of Tax Justice report has made no effort to correct any of the shortcomings of previous iterations.” We did respond to Cayman Finance’s criticisms when responding to Mr Neidle and Prof Murphy in 2021. Cayman Finance’s post this week mostly reiterates Dan Neidle’s and Richard Murphy’s criticisms, all of which have been addressed again in this blog.
Cayman Finance has also reiterated criticisms against the State of Tax Justice made in a report commissioned and published by Cayman Finance in 2021 – which we also responded to at the time. The report was written by Julian Morris, a senior fellow at the Reason Foundation. The Reason Foundation is a libertarian think-tank funded by Koch foundations and had as a trustee for 36 years the late US billionaire David Koch. Since the early 1990s, the Reason Foundation has repeatedly been criticised for taking money from fossil fuel companies and tobacco firms while publishing writings that align with those companies’ interests.
The Reason Foundation was one of 32 organisations with links to fossil fuel interests called out by US senators in July 2016 for their role in “perpetrating a sprawling web of misdirection and disinformation to block action on climate change.” Cayman Finance’s report takes a similar tone of misdirection and evidence-denialism. While we are always keen to engage with different views, we do not consider the erroneous and at time outlandish claims in Cayman Finance’s report to have been made in good faith. For this reason, we have chosen to not dedicate space in this blog to point out (yet again) the errors and misrepresentation in these claims. Our original public response to Cayman Finance’s report and wider criticisms is available here.
Welcome to our monthly podcast in French, Impôts et Justice Sociale with Idriss Linge of the Tax Justice Network. All our podcasts are unique productions in five different languages every month in English, Spanish, Arabic, French, Portuguese. They’re all available here and on most podcast apps. Here’s our latest episode:
Pour cette 52ème édition de votre podcast “Impôt et Justice Sociale” produit par Tax Justice Network, nous discutons du rapport de 2023 de l’État sur la Justice Fiscale dans le monde publié par Tax Justice Network. Nous expliquons notamment pourquoi plus que jamais il est important de porter les négociations pour un meilleur cadre fiscal international au niveau de l’Organisation des Nations Unies (ONU) et non plus sous le leadership quasi exclusif de l’OCDE
Avec Fadhel Kaboub un universitaire tunisien mais qui est installé aux Etats-Unis, nous explorons une nouvelle manière de voir la transformation structurelle de l’Afrique, pour la libérer d’avantage d’un système financier et fiscal mondial qui est inégalitaire et injuste pour le continent
Ont participé à cette émission
Idriss Linge : Communication and Advocacy Officer Tax Justice Network
Fadhel Kaboub: Professeur associé d’Economie, à la Denison University
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Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]
Welcome to our Spanish language podcast and radio programme Justicia ImPositiva with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast. (All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.)
En este programa con Marcelo Justo y Marta Nuñez:
20 años de la Tax Justice Network, la red de justicia fiscal. Los grandes desafíos de los próximos meses.
En nuestra miniserie sobre los 10 mitos fiscales, el mito número dos y el número tres.
Mito número 2: hay inflación porque el estado emite mucho dinero para financiarse.
Mito número 3: para crecer hay que pagar la deuda.
Noemi Brenta, investigadora del Conicet, el Consejo Nacional de Investigaciones Científicas y Técnicas, y autora de Historia de las relaciones entre Argentina y el FMI #ETFE Texto Completo: https://www.revistaanfibia.com/especial/mitos-impuestos/
Welcome to the 68th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطةcontributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available on most podcast apps. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can follow the programme on Facebook, on Twitter and on our website. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.
في العدد #68 من بودكاست “الجباية ببساطة” إستضاف وليد بن رحومة الدكتورة في علم الإجتماع هبة خليل، مديرة التعليم بمشروع “ما بعد الإستعمار اليوم” للنقاش في قضية إنعدام التكافئ في علاقة الدول الإفريقية بالقوى الإستعمارية وتبعات ذلك إقتصاديا وإجتماعيا. في الحلقة متابعة لأخبار المنطقة من لبنان إلى اليمن وتونس والمغرب وصولا إلى تخفيض تصنيف الولايات المتحدة من وكالة التصنيف “فيتش رايتينغز”.
In episode #68 of the Taxes Simply podcast, Walid Ben Rahouma hosts Sociology Professor Heba Khalil, and Education Director for the “PostColonialism Today” project, where they discuss issues pertaining to unequal relations between African countries and colonial powers, and their economic and social consequences. Walid also presents the top global and regional economic news for the month of July 2023.
Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here. In this edition of the Taxcast:
We’re experiencing the hottest global temperatures ever recorded. For millions of us, the climate crisis is already hitting hard. And we need to know, we must know – WHO are the beneficial owners of the climate crisis? It’s surprisingly difficult to find out…
Featuring:
Franziska Mager, Senior Researcher and Advocacy Lead (Climate & Inequalities), Tax Justice Network
“The emissions that are attributable to investments in polluting companies and sectors are estimated to be so, so, so much higher in volume than those consumption emissions for the majority of people. The regulation that is needed and that we’re asking for only pertains to a very small group of people on the whole, which makes it a very attractive policy option for most people.” ~ Franziska Mager, Tax Justice Network
“The most important thing when it comes to the richest people and climate change is their political power capturing governments, shaping policy, shaping laws. The fact that the tax havens are still open is a demonstration of their power and likewise for the polluter elite who derive their wealth and their luxury lifestyles from polluting activities, they are the ones who are using everything they can to block governments at national, regional and local level from basically pushing forward cleaner and greener technologies which would mean that the companies they’re invested or they own permanently lose market share, that’s what terrifies them. And that’s why, the political power of the polluter elite is so important to focus on and to counter. To actually shift things, you have to challenge the power.” ~ Dario Kenner, Carbon Inequality and the Polluter Elite Database
Summary of the Taxcast, who owns the climate crisis?
Naomi: “On this Taxcast episode: we’re seeing the hottest global temperatures ever recorded since records began. For millions of us, the climate crisis is already hitting hard, it’s already happening. And we need to know, we’ve got to know – who are the beneficial owners of the climate crisis?”
George Monbiot: “Look the clock is ticking, time is running out on the greatest crisis that we’ve ever faced, you know, we are…it’s almost unimaginable what we’re facing now and it it’s very hard to talk about it without crying because it’s the end of everything, I mean it’s the end of our hopes, our dreams, our ambitions, our loves, our hates, everything we’ve dreamt of for our children, the good world that we want for them, that could go! If, if global systems earth systems reach a tipping point, the planet will flip from a habitable state to an uninhabitable state and…I have two children and you know, every day I think – did I do the right thing..?” [Starts to cry]
Naomi: “That’s environmental campaigner and journalist George Monbiot there, getting upset during a TV interview. Because we’re in an emergency! And if we don’t know enough about who literally owns the climate crisis, it makes it harder for us to take the actions we urgently need to, not only to mitigate the damage, but also to address the inequalities that this crisis reveals, we need to do that too.
Lots of attention is going on things that can distract from the bigger picture. Almost all our attention gets focused on ‘consumption emissions’ – what we buy and use as individuals. But there are also ‘investment emissions’ – greenhouse gas emissions that only happen because people and companies are investing in them. Here’s Franziska Mager of the Tax Justice Network:”
Franziska: “I think most climate policies, or the ones that most people will have heard of are really targeted at consumption habits. So, making you change the car you drive, your, your flying habits, to make you switch energy source, and so on. And that’s really important, especially in rich countries that are massively exceeding their carbon budgets, everyone needs to make a contribution. But the emissions that are attributable to investments in polluting companies and sectors are estimated to be so, so, so much higher in volume than those consumption emissions for the majority of people.
A good way to think about it is what’s been happening to universities. So they, among others, are under pressure to make their buildings and their infrastructure more sustainable, so for example, through things like solar panels, banning single use plastic and so on, but they’re also under increasing pressure to divest from fossil fuels. And most of them sit on quite a significant amount of money and there’s pressure to put that money away from fossil fuels. So the solar panels in terms of scale, you know, will only get you so far if these universities still have portfolios or trust funds or endowment funds with high carbon content that are channelling money into future fossil fuel extraction.
And companies are made of people, the owners, the investors, the shareholders, the people who have stakes in them. Behind every company, there is a certain amount of people who own it, which will often be very difficult to track down but you know, the overwhelming majority of people in the world don’t have enough wealth to have investments, so we’re really talking about a pretty small minority of people who invest and this blurring between these two categories of companies versus individuals, in my opinion, is intentional because if you tackle the place where they overlap, which is the very, very top of the economic distribution, for example, by things like ownership transparency laws, that would really hurt and it would hurt the people who have the highest financial stakes in polluting industries the most.”
Naomi: “Of course, it’s perfectly legal to invest in activities that are causing the climate crisis. It’s socially acceptable even. This minority Franziska’s talking about – the world’s richest people – are already emitting huge and unsustainable amounts of carbon compared to the rest of us. But, unlike ordinary people, 50% to 70% of their emissions are resulting from their investments, that’s according to Oxfam. But, it isn’t that clear who these investors are, as Dario Kenner discovered. He’s Visiting Research Fellow at the University of Sussex and author of the book Carbon Inequality. He tried to identify the investors behind some of the largest oil companies:”
Dario: “So I was writing a book about carbon inequality, about the richest people, and I was mainly at the start looking at their consumption, so use of private jets and yachts and luxury cars and that kind of thing. But as I was writing that book, I realised that there was a massive part that I needed to look at which was the investment side, because it was likely to be a much bigger portion of pollution. And it is, if you think about it in terms of you know, one rich person driving one luxury car or taking private jet flights is going to be a certain amount, but investments in massively polluting companies, whether that’s, you know, oil and gas or agribusiness or whatever it is, is going to be bigger.”
Naomi: “And that’s why Dario got to work on a Polluter Elite Database:”
Dario: “I was trying to visualise the pollution of the richest to show it was more than the rest of us and to highlight that issue and try and encourage governments to pass policies and laws in that area. It was a difficult task to create this database and, and how to even get started. In my book I had to focus in the end on two countries on, on the United States and the United Kingdom but as we know, the rich are very global and that’s partly, you know, very obvious in terms of how they get around. So actually, picking two countries was, you know, it’s a bit arbitrary in some ways because the, the rich and the super-rich, they live in multiple countries.”
Naomi: “What Dario wanted to do was to quantify their ‘investment emissions’:”
Dario: “And so that’s CO2 equivalent connected to a person’s shareholdings in, in different companies or other types of wealth. I couldn’t do it for, you know, for every rich person in the world, or even for the billionaires, it’s basically very, very difficult to find out that kind of information. Even the rich lists that are compiled by Bloomberg and others, they have their own in-house teams to do that work and to track and to make calculations. I didn’t have those resources, or those kinds of information about what was happening, which you can’t find online, so I had to start with companies. So I thought, well, what are the most polluting companies in the world?”
Naomi: “So, Dario used as his starting point something called the Carbon Majors Database which gathered data on 100 fossil fuel producers and nearly 1 trillion tonnes of greenhouse gas emissions:”
Dario: “So I started with that, the 100 most polluting companies, mostly oil, gas, coal, cement, things like that. And so I was using annual reports, so for example, Shell’s annual report, there is some information disclosed in that report that has to be disclosed, that will be for the executive team, so the CEO and those other senior members of staff and then for the directors, and then the institutional investors, so like BlackRock and Vanguard and so any investor that holds more than 5% shareholding has to, basically is listed in the annual report so that’s why I could see that they were shareholders. And then for all of those, so for those individuals and directors and executive team and then for an institution like BlackRock I then had a, used a methodology which was, had been used to estimate portfolio emissions. I applied that to either the individual or say to BlackRock and basically calculated their, based on their shareholding, their percentage of, say, Shell’s emissions for 2016, for example.”
Naomi: “But despite his efforts, Dario could only account for 12.08% of the shares owned. Most of them belonged to two massive investment funds: BlackRock and Vanguard. So, we don’t know who the individuals are who ultimately hold the remaining 88% of shares:”
Dario: “Well, yes, it’s just a massive black hole. Who, who knows?! So it’s very unsatisfying only being able to present a short list of names and then say ‘BlackRock’ as well because, yeah, who are the other investors, basically?!”
Naomi: “Perhaps it’d be less socially acceptable to invest in activities like this that are fuelling the climate crisis if the identities of all investors were public, who knows? And of course, it’s hard to trace those investing in and profiting from illegal climate crisis activities too. As Peter Ringstad of Tax Justice Norway says here, tax havens, financial secrecy and weak data on ownership isn’t just an inequality challenge to societies and a threat to economies, it’s also directly putting in danger the continuation of human life on a habitable planet:”
Peter: “We’re currently living in a dramatic time of profound changes in human history and the history of our planet. The full-scale invasion of Ukraine in 2022 by Russia. As dramatic is the severe biological and ecological pressures that our Earth is being put under by human activities such as the destruction of vital and precious rainforests. The war in Ukraine and the destruction of our environment are committed for the purpose of gain – gain of power, gain of status, but most often the gain of money facilitated by an enabling environment – the elaborate international financial system of tax havens and professionals. This is the common denominator between Russian oligarchs that are evading sanctions and companies that contribute to harmful or illegal logging of rainforest. They’re all aided by the services in tax havens and are inextricably linked to the world’s largest crisis and can prevent us from effectively solving these problems.”
Naomi: “There’s all sorts of illegal and perfectly legal money-making going on that has to stop. Financial transparency sheds light on all of them. There are people, banks, institutions lending money to, insuring, banking and investing in the fossil fuel economy, individuals all the way along the feeding chain who’re getting very wealthy from it, at our very great cost. Researcher Victor Galaz of the Stockholm Resilience Centre studied the links between tax haven use and deforestation of the Amazon in Brazil:”
Victor Galaz: “There are something called tipping elements in the climate system meaning that there are big big systems that change incrementally up to a certain point and once you push them after that point, that tipping point, they change quite drastically and rapidly and has big impacts on the whole climate system and the Amazon rainforest is one such system. These are also known as sleeping giants, we were interested in seeing what are the connections between the financial sector and sleeping giants in the earth system. Many of these deforestation activities are linked to soy production and beef production and it’s been proven many many times that these are the two main drivers of deforestation. There are more of course, so you have mining for example that seems to be popping up as an additional big factor.”
Naomi: “Just like Dario Kenner you heard from earlier with his Elite Polluter’s Database, Victor Galaz found that accessing information on the actors involved in trashing the Amazon, some of the earth’s biggest lungs, was difficult:”
Victor: “If you want to conduct these economic activities in the Amazon you need funding right? I mean the funding is what makes all these activities operate, you need to to pay out salaries to people, you need to buy and build infrastructure etc so you need you need funding for it and it has been quite challenging to get to those numbers, to be honest I think there is a general lack of transparency in the financial sector in general just to see for example the sizes of loans, private loans to some companies. We just chose the biggest players in the soy and beef sector in Brazil and then started to look at the patterns of loans and payments to these companies that we know are prone to deforestation, so what type of capital flows are we seeing to these companies, from where in the world and which are the biggest financial intermediaries?”
Naomi: “To analyse the industries responsible for deforestation Victor Galaz used data that was made available by Brazil’s central bank – that this data was even made available was apparently unusual. And it shone a temporary light onto what he thinks is like a snapshot of practices on a global scale. What he found was that two thirds of foreign capital directed to Brazil’s soy and beef sectors between 2000 and 2011 was channelled through tax havens. And guess what? Often that’s a tax dodge too, so it’s not just potentially removing those responsible for deforestation from immediate view, as he explains here:”
Victor: “In 2018 what we discovered was first of all substantial amounts of capital to the soy and beef sector to these companies, a lot of it going from tax haven jurisdictions, a surprisingly large amount, so 68% was transferred through tax havens, so of all international flows of capital into these companies, 68% of what we analysed was through tax haven jurisdictions. In some cases – aggressive tax planning – a few of these multinational companies received 100% of the foreign capital through their own subsidiary located in a tax haven such as the Cayman Islands – and this is a common pattern that you would see if you’re looking into aggressive tax planning, a company would place its own subsidiary in a tax haven and then instead of going out to the open capital market for a loan, it would just give itself a loan from one of the from one of its subsidiaries and by that way you would actually lower your tax rate considerably.”
Naomi: “So, that’s a double-hit to people and the planet:”
Victor: “I mean it’s quite obvious that the countries where this is happening are losing tax revenue, this is a big problem, these funds could be used for socially and environmental beneficial investments in the country, and local investment to protect local communities etc so that capital is lost to something else.
I also want to mention, I mean I just talk about corporations but there are of course connections to to wealthy individuals in Brazil as well I mean, as we did the study it was it was clear that the Minister of Agriculture in Brazil was one of the persons that appeared in the Panama Papers so there were some connections here related to influential families in Brazil, the political elite, some of them linked to these companies and the individual holding of accounts in Panama and other tax haven jurisdictions.
So, aggressive tax planning by global corporations, that’s one part of the puzzle. The other thing that we know of, and there are cases – aggressive tax evasion by smaller companies linked to illegal activities, illegal mining, illegal deforestation, sometimes connected to drug cartels, especially in South America and then you have tax evasion by elite individuals. This is a complex interaction, sometimes they interact, sometimes they don’t interact but this is what we see happening. Very difficult to get a good grip of from a scientific point of view, and this is a vicious cycle, I think it is contributing to a lot of problems that we need to address.”
Naomi: “So, again, financial secrecy, tax haven use and lack of proper ownership registers are all blocking the way here. When it comes to tax, I’ve said many times before on the Taxcast, there are what we call 5 Rs of tax: tax isn’t just about the most commonly understood R – raising revenue – another one of the 5Rs of tax is called repricing – it means we can do things like use tax to incentivise beneficial behaviours like renewable energy and disincentivise harmful activities. Another of the 5 Rs of tax is redistribution to address inequality, which climate justice also must tackle. So tax is our super-power, it’s a great tool if we use it right. But hand in hand with tax justice, we must have full transparency of ownership. Here’s Andres Knobel of the Tax Justice Network who’s done a lot of thinking and work on how a global asset registry could work:”
Andres: “A global asset registry, or even starting with national asset registries, would be the best way to tackle and address the secrecy surrounding those who benefit from climate change. The most important aspect for these global or national asset registries is to capture information at the beneficial ownership level, meaning the natural persons who ultimately own, control or benefit from fossil fuels and other emissions industries. So this means that if we had complete and comprehensive global or national asset registries, we would have information about the end-investors at the beneficial ownership level of those who are passively benefiting from companies directly involving or exploiting fossil fuels, as well as investment funds who are also investing or profiting from these type of industries. Now a global asset registry would also cover the beneficial ownership over some specific types of luxury assets that are highly contaminating, such as private jets or private yachts, as well as those who have large farmland with a lot of livestock.”
Naomi: “And nations need to work their way as fast as possible towards a global asset registry, right? What are the best ways they can do that?”
Andres: “How to get there? Countries need to start ensuring that they have asset registries for all of these type of assets from real estate, farmland, livestock, private jets or yachts. And at the same time to start interconnecting these registries with their beneficial ownership registries. And assuming that of course, these beneficial ownership registries will not cover only local companies but also foreign ones that have ownership or interests in local assets. Once we have this, it will be possible, assuming of course, the beneficial ownership definition has no thresholds and really covers everyone to finally know who are the end investors at the beneficial ownership level, who are either passively profiting or directly using and exploiting luxury assets that are responsible for much of the climate change.”
Naomi: “In other words, we need all ownership to be registered, with no cut-off point, or threshold below which owners who have a small share of a company or asset can avoid registering – that just ends up creating a loophole where ownership gets divided up artificially. So, that’s one important way forward – a global asset registry, and national asset registries. That kind of spotlight on emissions investors makes it easier to target tax policies and other measures on the right activities and people. Dario Kenner again:”
Dario: “Clearly at a time of massive economic inequality in so many countries, the rich have to pay more tax. And I mean that is blindingly obvious. And one thing is transparency and then there’s another thing which is – what do we need to do to fully address the climate crisis? And you know, there are kind of tools that can be used, but in terms of addressing the climate crisis, we have to get entire economies off fossil fuels and a bit more transparency here or there can help, but it might not lead to that economy-wide shift that quickly.”
Naomi: “Mmm, certainly not quickly enough, no.”
Dario: “The most important thing when it comes to the richest people and climate change is their political power. And that actually is the really central thing which is, is kind of obvious to say to a lot of people, but it’s maybe harder to talk about, it’s harder to see, but it’s that political power capturing governments shaping policy, shaping laws. I mean, as you will know, the fact that the tax havens are still open is a demonstration of their power and likewise for the polluter elite who derive their wealth and their luxury lifestyles from polluting activities, they are the ones who are using everything they can to block governments at every level, national, regional and local level from basically pushing forward cleaner and greener technologies which would mean that the companies they’re invested or they own permanently lose market share, that’s what terrifies them. And that’s why, the political power of the polluter elite is so important to focus on and to counter.”
Naomi: “Oh absolutely, absolutely!”
Dario: “And basically, getting in to this, what I call counting carbon – it’s great that we all know who is polluting and by how much, but actually I just think it’s important to, to be clear about the tool and what it can do but how it fits into that broader transition in terms of energy and transport, technology and food because this is a broader context that we’re operating in.
I’ve actually stopped counting carbon and shifted from carbon inequality to just focus on the lobbying by the oil and gas industry, for example, because I realised that the counting of the carbon, which is useful, we need to know who’s polluting and especially if there’s massive inequality, which there is. But I, I deliberately decided to stop that work and to look at the lobbying because that is the thing that is stopping the economy-wide shift so that we all, including the rich, have other options for energy and transport.”
Naomi: “Yeah. That makes total sense because that’s where the power lies, in the end.”
Dario: “Exactly. Exactly. And I’m sure you, you’ve seen the same on tax, you can get into all the technical part of it and transparency is absolutely fundamental, of course it is. To actually shift things, you have to challenge the power.”
Naomi: “Absolutely. And although big oil and gas companies are making all kinds of promises to somehow ‘green’ their operations, Dario believes there’ll be absolutely no transition from fossil fuels unless, he says, ‘the polluter elite who run big oil and gas companies are weakened economically, politically and morally.’ He’s currently focusing on researching how oil and gas industries have been lobbying against solar and wind energy, and electrified transport. I’ll put links to his work in the show notes.
So, financial transparency, full beneficial ownership transparency, national and global asset registries – they’re all crucial tools in targeting the power of ultimately a small number of people and large polluting companies. Tax is key. To get to the low carbon societies and economies, we need carbon tax justice that tackles the historical dominance of high emitting people, industries and nations. And greenhouse gas emissions need to be reduced while ticking three essential boxes – it’s got to be at high speed, it’s got to be in large quantities and it’s got to reduce inequality – that’s what we call the carbon tax justice triple reduction nexus, and we’re gonna cover this in detail soon on the Taxcast. Meanwhile, the world’s wealthiest nations must wake up fast to their responsibilities for the climate crisis. Here’s environmental campaigner George Monbiot again, speaking on ITV in the UK:”
George Monbiot: “the great majority of the world’s people are not having a voice in this, you know, we’re doing it to them, we with our huge carbon emissions, the amount of fossil fuel we’re burning, we’re destroying the lives of people on the other side of the world, people in Bangladesh, people in Sub-Saharan Africa people in Central America, their lives are being absolutely trashed by the way we’re just going about our daily lives, driving on the roads, not insulating our homes, producing all these greenhouse gas emissions, we are literally destroying lives at a phenomenal rate right now and those people are not represented in our decisions, they’re not represented in our political systems.”
Naomi: “Here’s Franziska Mager again of the Tax Justice Network:”
Franziska: “Most, if not all of the emissions targets and specific policies we do have now treat the climate crisis as something of this moment. A good example is something you’ve may be heard of, the Nationally Determined Contributions or NDCs. They are sort of non-binding national plans highlighting the climate change mitigation strategies that countries commit to, including their targets for greenhouse gas emissions. A lot of these strategies look forwards, and not at all backwards. A lot of these strategies draw from broadly the ‘now,’ what needs to change to stay within well, hopefully 1.5 degrees, if not two degrees. So there isn’t really a look backwards and we’ve only arrived at this point in this, you know, extreme version of climate breakdown because of the development and the industrial activities that have unfolded over the last decades, if not centuries. So if you rethink the now as something that’s a result of a cumulative phenomenon, the picture and the responsibilities change completely. Not everyone is responsible to the same degree. In fact, most people, especially in the Global South arguably have absolutely zero responsibility. And there is this sort of fork in the path we’re standing in front of right now and this perception is changing, but it is changing too slowly for what needs to happen.”
Naomi: “Not only are the world’s wealthiest nations the main culprits for the climate crisis, they got rich from colonial practices that have impoverished colonised regions to this day. That’s hampering the efforts of poorer nations to transition to net zero and tackle inequality. They continue to be drained by extractive practices through global capital markets. And what began with the exploiting of people and natural resources of colonised regions, shifted to wealth extraction through financial secrecy, tax haven networks and the twisting of global corporate taxing rights. That’s why a crucial aspect of reparational justice is for global south nations to claim their sovereign right to tax global multinationals fairly. And that’s happening now in efforts to move decision-making on international tax rules to the United Nations, led by African nations.
Countries in the global south are especially challenged when it comes to tackling the climate crisis because of their unsustainable mountains of debt. This is Kenyan President William Ruto speaking at the recent Summit for a New Global Financing Pact:”
President Ruto: “In Kenya we are paying we are paying five billion dollars every year to service our debt. If we have to deal with the climate financing in the context of what we agreed in 2015 in the consensus we built out of the Paris Agreement where we get emissions down by 45% by 2030 and Net Zero by 2050, we need 9.2 trillion dollars every year for us to get to Net Zero by 2050. We have a gap of 3.5 trillion dollars. How do we raise 3.5 trillion dollars to be able to close that gap? If we got an opportunity not to pay the five, not to pay the five 6:38 billion dollars and it is made available to us we would have money at scale. And if it was done for 10 years and we are given 20 years grace period, we would be sorted and everybody will be happy. We will still pay our debt, it has just been postponed, so the shareholders have no problem and we have immediate money to deal with our situation, so we are also not doing badly, so we can have a win-win. Hopefully before we leave here we have that agreement, I don’t think it is unfair for us to ask.”
Naomi: “Indeed, it’s not. Many would push further, from just delaying repayments to cancellation, if for no other reason than putting net zero goals first in the interests of human survival on earth – I mean, global food production is now at a tipping point for goodness sake! Franziska Mager again:”
Franziska: “You know that’s why debt cancellation are integral to climate justice, countries in the Global South, or debt ridden countries that need to transition need this debt to be gone. And I think it’s really useful to view the extreme inequality in economic distribution and the emissions that are linked to that distribution as one space for policy, not two separate spaces. There’s this term in environmental law of common but differentiated responsibilities and a lot of the climate crisis narrative very justifiably emphasises the common part of that responsibility but not everyone is responsible to the same degree. So viewing inequality and emissions together opens specific policy options and then it narrows them down to what is the most urgent, at least in the short term.”
Naomi: “So, tackling inequality and carbon emissions go hand in hand. Back to Kenya’s President Ruto and how on earth his nation can possibly both service its debt and transition to net zero. The Kenyan government raised taxes recently on fuel and housing – they say to cope with rising debt repayments. Desperate protests broke out across the country and police fired on protestors, killing two people. Truly terrible days like that are connected to the slowness of wealthier nations to act on debt and climate crisis:”
President Ruto: “We are not making progress ever since Paris in 2015 because we had a global consensus on a global problem called climate change but we tried to sort it out using national institutions that are hostage to national interests or we tried to use shareholder institutions that have shareholders who will make the decision finally. So we must get a new financial architecture around climate financing so that we can sit at the table, so there are no shareholders. We are not going in the right direction, we’re going backwards so it is urgent that we all agree on how to go forward. And why specifically do we need to target taxing fossil fuel? Because it is the fuel, it is what is contributing 73% of all global gas emissions that are causing trouble in our globe, that’s why we must go there and that is the difficult conversation we must have. Let us agree to pay the aviation tax, we have no problem, let us agree on the shipping tax and we want to pay, we don’t want anybody to pay for us, we want to pay our percentage. It is only when we raise global finances that have no national interest for any particular country or shareholder interest of any person, that is how we are going to sort out this global challenge.”
Naomi: “Franziska Mager again:”
Franziska: “I really believe that there is big potential for political parties when it comes to legislation and regulation around financial transparency, they should take this topic and really go about mainstreaming it massively and make it part of their platforms. It’s a sort of cousin to the anti-corruption rhetoric which is obviously closely related. The regulation that is needed and that we’re asking for only pertains to a very small group of people on the whole, which makes it a very attractive policy option for most people.”
Naomi: “In previous times of crisis, the world has managed to come together and take collective action. After the second world war, the mega-reconstruction that nations did involved taxing the very richest highly. The world’s nations have done things in very new and different ways when the gravity of a situation has required it. We can do it again. We have to. President Ruto again:”
Ruto: “Let me dare say the following. After the Second World War 44 countries, 740 – I think 44 – delegates sat in a small city called Bretton Wood, the Bretton Wood institutions were agreed in three weeks. The UN that we today celebrate was a conversation by 50 countries in two months. Because it was necessary. Because there were leaders that wanted and that had capacity to make decisions. Because there was, the whole of Europe had been destroyed and so it was urgent and it was important for a decision to be made. Why is it difficult for us? Are we saying the crisis that we are going through, including from Pakistan is not serious enough for us to agree on a global financing mechanism that sorts out climate change as a problem that is affecting all of us? Are we saying ever since 1945 we have become stupid, is that what we’re saying? Or we have become less human that we have no more feelings about what’s going on? Are we saying that we are incapable of making the decisions that are required of us as leaders?”
[Music]
Naomi: “That’s it for now on the Taxcast. There are more policy ideas for climate and equality justice advocates in our report ‘Delivering climate justice using the principles of tax justice,’ which are in the show notes, along with lots more further reading. Thanks for listening. I’ll be taking a break next month but I’ll be back with you after that. Bye for now.”
Investimentos justos, economias melhores: Motivado pelo comentário da ouvinte Aurora de Armas no episódio anterior, o episódio #51 do É da Sua Conta busca encontrar maneiras de investir ou apenas abrir uma conta corrente sem alimentar os lucros dos banqueiros e do mercado especulativo, contribuindo, de fato, para uma economia que funcione para as pessoas e fortaleça a produção de alimentos saudáveis e leve em conta o meio ambiente.
O sistema financeiro e os perigos do mercado especulativo, com Lena Lavinas (Universidade Federal do Rio de Janeiro)
Como se ganha dinheiro com investimentos e a questão da baixa tributação de investimentos especulativos, com Márcio Calvet Neves (Instituto de Justiça Fiscal).
Finapop, uma empresa que financia a agricultura que produz alimentos saudáveis e agroecológicos, com Ana Terra (Finapop).
COPAVI, uma cooperativa formada por assentados da Reforma Agrária e que foi beneficiada com os investimentos captados pela FINAPOP, com a cooperada Cris.
CRESOL, uma cooperativa de crédito na qual qualquer pessoa (física ou jurídica) pode se tornar associada ao abrir uma conta corrente, por exemplo, com Vitor Hugo Tonin.
Reforma do Imposto de Renda: o que pode ser feito para que investimentos especulativos sejam melhor tributados e contribuam para a economia “real”
Vitor Hugo Tonin, doutor em desenvolvimento econômico e coordenador em São Paulo da Cresol, sistema cooperativo de finanças) em São Paulo
~ Investimentos justos, economias melhores #51
“Toda crise é uma sobreacumulação do capital. Tem muito capital sobrando e esse capital não está sendo reinvestido na produção, se desloca para o sistema financeiro, onde os rendimentos nessas aplicações começam a aumentar”. ~Lena Lavinas, Universidade Federal do Rio de Janeiro
“O nosso objetivo tem que ser acabar ou pelo menos aproximar a tributação do capital à tributação da renda. Com a atual legislação brasileira, que tributação sobre investimentos é zerada ou muito baixa, você aumenta a desigualdade social.” ~ Márcio Calvet Neves, Instituto de Justiça Fiscal
“Para as pessoas que têm dinheiro, sugiro investir em cooperativas, projetos de produção – industrial ou agropecuária – , de preferência projetos coletivos e com perspectiva sustentável.” ~ Aurora de Armas, ouvinte É da Sua Conta
“O sistema financeiro pode canalizar recursos de quem tem dinheiro parado para quem precisa do dinheiro para investir. A questão está justamente em quem dirige o sistema financeiro e, por isso, a importância da gente ter um sistema financeiro que seja dirigido coletivamente, endereçado para atender coletivos” ~ Vitor Hugo Tonin, Cresol
Os resultados do crédito Finapop às cooperativas de produção de alimentos: “casos de cooperativas que duplicaram ou triplicaram até o faturamento; geraram mais postos de trabalho e agroindústrias fizeram adaptações para eliminar o seu impacto ambiental” ~ Ana Terra, Finapop
“Com essa moenda e a instalação da caldeira, a gente consegue quase zerar o consumo de lenha, só utilizando o bagaço de cana para tocar a estrutura industrial. Com as mudanças na estrutura, a gente avalia que diminuiu entre 6 e 7 graus a temperatura dentro da indústria, diminuindo o esforço físico envolvido pelas trabalhadoras e trabalhadores no processo de produção.” ~ Cristina Sturmer dos Santos, Copavi
This week we released the 2023 edition of our flagship State of Tax Justice Report.It shows that countries are on course to lose US$4.8 trillion to tax havens over the next 10 years – that’s more than the entire world spends on public health annually; and argues that countries must adopt a UN tax convention to avert the astronomical losses.
“Isn’t tax avoidance legal?” “Has the OECD really failed – it’s agreed a global minimum tax rate?” “Can the UN succeed where the OECD hasn’t?” These are good questions folks have asked us about our new State of Tax Justice report. In our interview with @dwnews the Tax Justice Network’s CEO Alex Cobham talked about some of the answers:
“Isn’t tax avoidance legal?”
Because of the way that tax rules work – or rather the way that they don’t work – it’s actually impossible to draw a hard line between what’s illegal or unlawful avoidance and what’s lawful. So what we can see in the data is simply the scale of profit shifting – the amount of profits that multinational companies are artificially declaring in low tax (or no tax) jurisdictions instead of in the places where they’re actually making that money and where they carry out their real activity. We can’t say for sure in every case that they’re breaking the law to do that. We certainly can’t say that they’re not breaking the law. What we can say is that the impact is these huge losses of tax revenue that cost all of us in terms of foregone public services, in terms of our small businesses not being able to compete, not having a level playing field because they are paying their taxes and because of the inequality that we all suffer as result of not having these public services in place.
“Has the OECD really failed – it’s agreed a global minimum tax rate?”
The OECD has completely failed to deliver.
The OECD didn’t get an agreement on a minimum global tax rate in 2021 – except in principle. There was then and continues now to be no legally binding commitment.
Multinational companies should pay taxes the same as domestic companies should pay taxes: where they make their money, so where they have their staff, where they make their sales. Instead we’re stuck with a set of tax rules that the League of Nations agreed 100 years ago – and which the OECD has tried to defend. They rely on this pretense that the individual companies within a multinational group are actually trading with each other as if they were at arm’s length, as if they were independent companies. It’s not true and it’s wide open to abuse. That’s why we get these hundreds of billions of dollars in tax losses. We need to shift to a unitary tax system that allows us to tax companies in the places where they’re actually making money and really cuts through this profit shifting. But the OECD has failed to deliver that.
Unless there’s a dramatic shift in the US so the world is waiting on one country and can’t move forward with the minimum tax. Some jurisdictions have begun to introduce a piece of that but actually it’s the most aggressive corporate tax havens that are moving ahead like Switzerland – and that’s because they’ve worked out that this is so badly designed that they can actually do better under it. Meanwhile the degree of profit shifting will continue as before even if other countries sign up (which looks increasingly unlikely.) So we’ve had 10 years at least since 2013 of the OECD having the responsibility to deliver this and failing to do so.
There may possibly be a legally blinding instrument in place by the end of this year but it’s unlikely it will have any significant effect on revenue losses at all.
“Can the UN succeed where the OECD hasn’t?”
The United Nations has been designed to allow countries with conflicting interests on very complex questions to negotiate together. Because those negotiations are transparent people like us can hold our governments to account for the positions they’re taking. The problem at the OECD is they’re really not designed for this type of negotiation. All of the process are done in secret. That means you have governments coming out saying that they are firmly against corporate tax abuse – meanwhile in practice what they’re saying is no no we don’t want to make any progress at all, let’s block this.
Keeping things at the OECD pretty much guarantees that we will continue not making progress internationally but having this kind of zombie process continuing, preventing countries from taking unilateral measures that would be more effective themselves.
The UN promises more transparency, but also perhaps more hope of consensus. If you think about something like the UNF Triple C framework convention on climate change, there are cases where a big blocker (for example the United States) has been publicly shamed into having to take a better position. Because the negotiations are conducted in public, both the individual countries of the world can see what each other are doing, but so also can the citizens. So, when a country is taking a blocking position against measures that would be good for everyone – including itself – perhaps it’s doing so because of the corporate lobbying that it’s subject to. That’s something we see in tax justice as much as we see it in climate work. These countries can be forced by the transparency into taking a better position. That’s certainly what happened with the United States on climate. The expectation is that while tax negotiations at the OECD allow individual countries to play a very significant blocking role without any kind of accountability, in the United Nations that’s simply not possible. That doesn’t guarantee that every country will behave better or that we won’t have blockers. But it does guarantee that we’ll be able to see what’s happening.
The other big difference is that the OECD tries to achieve consensus privately, while the UN has an explicit mechanism for voting, so that on questions where you can’t reach consensus you can still move forward with a majority vote. That means an individual country – even a very big one like the United States – cannot block the rest of the world from moving forward.
The questions underscore the other arguments we have explored on why the world needs UN leadership on global tax policy: it is the single most representative global body; its specialist technical bodies and legal frameworks were designed precisely to coordinate and harmonise global practices; and it secures accountability through enforceable binding agreements and reporting mechanisms.
Countries have a historic choice to make this year’s end at the UN: stay the course on global tax with the OECD or support moving leadership on global tax to the UN.
This briefing explains why countries should support the move to the UN. Nearly US$5 trillion of future public money is on the line.
A single nation, or privileged group of nations should not be dictating the terms upon which our global societies function. And yet they do.
The historic vote at the UN General Assembly in November 2022 for growing the UN’s role in international tax marks an important watershed moment for solidifying the transition towards more inclusive decision making and broader space for progressive policies. Crucially, this process can generate major gains for societies all around the world, by re-establishing the scope for fairer taxation for all.
If countries continue blindly on the course followed for the past 10 years on international tax rules, the State of Tax Justice 2023 estimates that countries will lose US$4.8 trillion over the next 10 years. By comparison, countries around the world collectively spent $4.66 trillion on public health in a single year. The 2007-2009 Great Recession is estimated to have led to a loss of US$2 trillion in global economic growth. Tax losses over the next 10 years would have twice the impact of the Great Recession on the global economy.
To avert these astronomic losses, countries must democratise how global tax rules are determined by supporting a move to UN tax leadership.
In an increasingly connected world, global standards, coordination, and cooperation are of paramount importance. As economic and social interactions transcend national borders, it becomes essential to establish common norms and practices that ensure consistency, fairness, and efficiency.
Global standards serve to promote transparency, accountability, and a level playing field for businesses and individuals alike. Moreover, coordination and cooperation among nations foster mutual understanding and enable joint efforts in addressing shared challenges such as climate change, cybersecurity, and public health.
By working together, countries can pool resources, share best practices, and achieve outcomes that go beyond what any one country could on its own. In a world where interconnectedness is the norm, global standards, coordination, and cooperation serve as vital pillars for promoting stability, sustainable development, and the wellbeing of people across the globe.
There are global governance structures – under auspices of the UN – for peace and security, human rights, sustainable development, global health, environmental protection, international law, justice, and trade. And yet, despite tax keeping countries ticking and our economies intertwined, there is no global governance structure for tax.
This autumn, governments around the world will have a realistic, once-in-a-century opportunity to take back control of their tax systems and turn tax back into a tool for equality.
The cost of tax abuse
Every second, our governments lose the equivalent of a nurse’s yearly salary to a tax haven.
Global tax abuse steals billions in public money and rob billions of people of a better future. But it doesn’t have to be this way.
At the Tax Justice Network we believe tax is a social superpower in pursuit of equality. Tax funds our public services, strengthens our economies and makes our democracies healthier – all of which create the opportunities that make a good life possible for everyone.
But for decades, under pressure from mega-corporations and the superrich, our governments have increasingly programmed our tax systems to prioritise the desires of the wealthiest over the needs of everybody else. A handful of corporations and billionaires have been allowed to capture untold wealth and, in the process, have made our economies too weak to provide adequate livelihoods, and big, sometimes dirty, money was allowed to squeeze people out of having a say in their own democracies.
This injustice needs to be undone, and tax justice campaigners are already working with governments on this.
Taxes constitute some 70 per cent of revenues for lower income countries, which are also significantly more reliant on corporate taxes than higher income countries. These countries face real challenges in broadening their tax base and can ill afford the depletion of tax revenues they are legitimately entitled to.
We cannot afford the half a trillion dollars of tax revenue lost each year to cross-border tax abuse. We cannot afford the undermining of progressive taxes on income and wealth that follows, and the inequalities that result. We cannot afford the loopholes in national law and international rules that are created and exploited by an entire industry of tax professionals and lobbyists for vested interests. We cannot afford the antisocial tax behaviours that see the top 1 per cent of households responsible for more than a third of unpaid tax in a country like the United States, while multinational companies’ unpaid taxes in lower income countries equate to half of these countries’ public health budgets.
Tax havens are growing unabated despite measures introduced to curb the tax abuse they enable. The percentage of corporate profits held in tax havens has steadily risen for decades and is now more than triple what it was in the mid-80s.
Global governance of tax in the 21st century requires a genuinely inclusive and representative forum at the UN to replace the rich country members’ club, the Organisation for Economic Cooperation and Development (the OECD). A breakthrough in the 2022 UN General Assembly saw a resolution unanimously adopted, mandating the Secretary-General to prepare a report on the options and modalities for negotiating such a framework, and beginning intergovernmental discussion.
US$1.15 trillion worth of corporate profit is shifted by multinational firms into corporate tax havens a year, for no reason other than to artificially reduce the amount of tax payable. As a result, our governments are losing US$311 billion in corporate taxes that should have been paid, and an additional US$169 billion in taxes lost through wealth hidden in tax havens – every year. This brings annual total global tax revenue loss to US$480 billion.
Other areas of government spend are equally under-resourced: in the past 40 years most international meetings and policy documents on education finance have focused on international aid or concessional loans. But these make up only 3 per cent of the financing of education, and official development assistance only accounts for 18 per cent in low-income countries and 2 per cent of education spending in lower middle income countries. The international benchmark calls on governments to allocate between 15-20 per cent of national budgets to education – a standard few lower income countries can meet. As a result, in 2019, 63 million children of primary school age were no longer attending school.
The broad scale of tax abuse is not an academic discourse or a theoretical construct – it has a direct and tangible impact on our lives and on our communities. It results in service delivery failures at every level. If governments cracked down on tax abuse, 28.9 million more people would have access to basic sanitation, 14.3 million people would have clean drinking water, and almost 11.4 million more children would be able to attend school – every year. The increased government spending that would be available would, over a decade, avert the deaths of 443,254 children, allowing them to survive their childhood.
Lower income countries are hit harder by this tax revenue loss. The average low income country has a tax to GDP ratio of just 16 per cent, falling way short of middle income countries that are nearer to 30 per cent or high income countries that often exceed 40 per cent.
Taxes are the most significant and sustainable source of revenue in low and lower middle income countries, constituting 70 per cent of their total revenues. Of this, corporate tax contributes much more (about 13 per cent) to low income countries’ tax revenues than it does in high income countries (about 7 per cent). This makes securing the corporate tax base in these countries critical. It also makes any restrictions on their ability to collect whatever taxes are legally due even more dire. Tax policy should be helping these countries to grow their corporate base so it can contribute even more than the current 70 per cent of government revenues, instead of hindering them, as it currently does.
While higher income countries lose more tax, their tax losses represent a smaller share of their revenues (9.7 per cent of collective public health budgets). Lower income countries by comparison collectively lose the equivalent of nearly half (48 per cent) of their public health budgets.
Who leads global tax policy today?
There is no representative, multilateral, coordinated shepherding of global tax policy today.
In the absence of a structured global policy development space, the OECD has informally taken on the mantle over the past sixty years, even though it was never constituted to do so. Its efforts may be visible, but it is not representative, it does not have a legitimate mandate to develop international tax policy, and its policies have failed to secure systemic change.
Global tax governance needs to deliver a transformation for justice and fairness. Such a transformation will not be delivered by the OECD, an institution that is neither representative nor has a legitimate mandate to develop international tax policy. Moreover, the OECD’s seemingly narrow definition of sustainable development, limited to a model of economic competitiveness with significant spill over impacts on non-member states, fails to set policies that can coherently deliver sustainable development for all our people or our planet. The policy regime the OECD has tried, and failed, to deliver since 2013 is characterised by a lack of inclusivity and by reliance on voluntary country compliance, with no consequences for non-compliance. OECD member countries are responsible for the bulk of tax losses as a result of abusive practices.
Key issues with the OECD’s tax leadership
Key issue 1: Lack of representation and mandate
Today, the UN Tax Committee has observer status in certain OECD tax-related bodies, such as the Committee on Fiscal Affairs, allowing it to participate in discussions, to contribute to the development of OECD tax standards, and to provide input. It’s an intrinsically problematic arrangement, where the agency best placed to lead tax policy development, is instead relegated to one that is allowed to merely make an input.
The OECD positions itself as an international organisation that works on international standard-setting, sitting “at the heart of international cooperation.” It in fact only represents a small percentage of countries and is demonstrably not representative of low or middle income countries.
The OECD’s own articles require it to prioritise member states. The OECD is simply not capable of playing a globally inclusive role because it was never constituted to do so.
The OECD has 38 member countries – compared to the UN’s 196.
Its members consist of high income countries with developed economies. None of their member countries are classified as low or middle income economies.
The organisation’s decision-making processes do not involve or represent the interests of low and middle income countries and emerging economies.
Example – G24 side lined in favour of US-France proposal
In 2013 the OECD established its Base Erosion and Profit Shifting initiative.
It failed to deliver any meaningful reforms.
Lower income countries were then invited to participate in an “inclusive” framework process – but which required countries to accept the first BEPS without any say.
In 2019 BEPS 2 started with the “inclusive” framework giving a workplan to evaluate a multilateral G24 proposal for a comprehensive shift to unitary taxation, along with two other proposals from other countries including the US and UK.
The secretariat never delivered the promised evaluation of the various proposals that were tabled.
Instead it came back with a “unified” proposal which simply reflects the bilateral proposal that had been made by France (where the OECD is based) and the US (the OECD’s biggest member.) This bilateral proposal for unitary taxation would only apply to those with a turnover above €750 million.
The bilateral proposal was accepted.
The multilateral G24 proposal was ignored in its entirety.
The dramatically watered-down proposal was supposed to have come into effect in 2020. It still has not.
Their policy recommendations and guidelines tend to favour the interests of its more affluent member countries. As a result, the influence of major economies, particularly the United States, within the OECD has the potential to side line the concerns and needs of smaller or less influential member states. As a result, smaller, lower income countries are excluded from or marginalised during negotiations.
Example – Double taxation agreements favouring OECD members
Double taxation agreements based on the OECD’s model treaty template (of which there are some 3,500), result in tax revenues flowing to the OECD countries where the multinationals are headquartered – and not where the economic activities are being performed, or where the resources are being extracted, and where tax therefore should more reasonably be paid. The model treaty embeds privileges for the states where companies have their residence – which are typically OECD countries, at the expense of other jurisdictions
The OECD’s decision-making processes lack transparency and are not sufficiently open to public scrutiny. Important policy discussions and decisions within the organisation are often conducted behind closed doors, accompanied by heavy, opaque lobbying – both of which limit the accountability and democratic legitimacy of the OECD’s actions.
By contrast, the UN is the global institution designed to host the negotiation of complex issues with many competing interests and has a track record of important successes. Central to its approach are transparency about the positions taken by individual countries; democratic principles of decision-making, including voting; and a globally inclusive membership. These elements can shift outcomes significantly, as governments become accountable to one another and to their own people, for their support or objection to specific proposals.
The UN has not yet taken up stewardship of global tax policy development. This is not because it is not capable of doing so, nor because it is not the obvious place for it. It is a matter of priority. The UN is well positioned to be the steward for global tax policy development. It is capable of doing so and indeed is the obvious place for it. Yet insufficient funding and vested interests maintain the current porous approach. While the UN is contributing to the debate, it is not yet driving it. Its tax committee is under-resourced and under-staffed and does not (yet) have the same profile in tax policy development as the OECD does.
Key issue 2: Voluntary adoption of unenforceable recommendations
The recommendations and guidelines issued by the OECD are not legally binding or enforceable. There are no penalties or sanctions imposed by the OECD itself for non-compliance. The lack of enforcement mechanisms undermines the impact and relevance of the organisation’s initiatives.
Having enforceable standards with meaningful accountability is important. Once a convention or agreement is adopted, member states are legally bound by its provisions, and are required to develop national legislation, policies, and measures that align with the convention’s objectives.
Failure to comply with UN decisions have exactly that kind of meaningful accountability through tangible consequences like diplomatic isolation, economic sanctions, travel restrictions and legal proceedings before international courts. Of course there are countries that fail to meet their obligations and commitments under UN agreements or protocols. But unlike the current situation with tax policy, there is a level of deeper transparency supporting broader societal goals and environmental sustainability. We know that the US has not fully implemented various UN agreements, including, for example, the Paris Agreement. We know that North Korea has reneged on a number of its commitments particularly in respect of nuclear weapons. Sudan and Myanmar have failed to meet their human rights obligations; and Russia faces ongoing criticism for contravening international law.
These country-specific examples serve to strengthen the argument: they show that the UN monitoring mechanisms work, and that the reporting mechanisms have the ability to flag countries who fail to meet their obligations. It represents a level of transparency and accountability almost entirely lacking in the global tax policy space.
Because the UN’s processes and engagements are largely transparent, it is easier to hold it – and its members – accountable for the decisions they make, and for their adherence to those decisions. Its reporting mechanisms and monitoring bodies allow the broader public to understand the extent to which member countries are meeting their obligations; and to hold member states accountable for their commitments and obligations.
Key issue 3: Focus on economic competitiveness at all costs
The OECD’s emphasis on competitiveness revolves around traditional economic indicators, such as GDP growth and productivity, with policies that prioritise the needs of multinational corporations over locally based competitors, in a way that has nothing to do with genuine business productivity or true innovation. Instead, capital and production should gravitate to where they are most genuinely productive. Indeed, countries like Japan, with its 29 per cent tax rate, and Denmark, with its 55 per cent tax rate, prove that one does not need artificial tax “competition” to see real economic growth.
Tax competition only results in wealth being redistributed upwards, in regressive tax systems that ask more from low and middle income families than from the wealthiest, and where the poor may in fact pay more tax than the wealthiest. It results in falling corporate income tax contributions despite rising corporate profits. As with all tax abuse it helps nobody, anywhere, produce a better product or service. It lets multinationals out-compete smaller, locally based competitors, in a way that has nothing to do with genuine business productivity or true innovation.
The narrow focus on “competitiveness” aside, the OECD’s recommendations and policies are generalised and apply a “one-size-fits-all” approach, which fails to account for the unique circumstances, cultural differences, and developmental stages of individual countries. Instead of developing sensible global tax policies, current rules instead allow for some bizarre practices with no commercial substance:
Example – Bizarre practices of regressive tax policies
American multinationals reported 43 per cent of their foreign earnings in five small tax haven countries: Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland. Yet these countries account for only 4 percent of their foreign workforces and just 7 per cent of their foreign investments.
The profits that American multinationals claimed to earn in Bermuda equates to 18 times of that country’s entire annual economic output.
Apple’s structure resulted in it paying an effective tax rate of 0.005 per cent on its European profits; and 14.8 per cent on its global profits.
Nike operates 1,142 retail stores throughout the world – not one of them is in Bermuda. Nevertheless, it runs its books through Bermuda in the process securing it an effective tax rate of 1.4 per cent.
Goldman Sachs has 511 subsidiaries in Cayman Islands, despite not operating a single office in that country – the group officially holds US$31.2 billion offshore.
Key issue 4: Structurally biased implementation
After 10 years, the OECD’s restrained implementation efforts have not led to significant improvements in the scope of global tax abuse. This is not because the solutions are necessarily wrong but because the principles have been compromised and diluted to the point of inefficacy, or reneged on altogether.
There are multiple examples that highlight how measures have been compromised or reneged on, in the process rendering them ineffective. The lack of traction is attributable to everything from exclusionary processes, to being susceptible to the vested interests of the wealthiest:
A common reporting standard for the automatic exchange of information between tax administrations is an enormously powerful tool to overcome bank secrecy and the associated undeclared offshore accounts. Although more than 110 jurisdictions have signed up to the OECD’s common reporting standard, the exchange of information between tax administrations is characterised by a number of systemic failures:
All the major financial centres are included – except the USA.
Its impact has been significantly weakened through a provision that the information exchanged may only be used for tax purposes (and not, for instance, as part of money laundering investigations).
Most of the lower-income countries remain excluded due to spurious requirements for reciprocity, which can be extremely difficult for less developed countries to comply with.
Only 9 of the 54 African countries and 2 of the 46 least developed countries have adopted the measure.
Unitary taxation to counter base erosion and profit shifting. The OECD reform process in 2019 conceded that the arm’s length principle – put in place by the League of Nations a century ago – is not fit for purpose and is at odds with the G20’s single tax goal (in place since 2013) of better aligning taxable profits with the location of real economic activity. Instead, the current arm’s length principle makes profit shifting relatively straightforward. The better alternative is to assess taxable profit globally at the unit of the multinational, rather than at an entity level within the group, and then to apportion those profits between countries of operation. Despite committing to the principle of unitary taxation in principle, the scheduled delivery date for even a watered-down version – 2020 – has long passed, and ambitions around this principle appear to have all but collapsed.
Country by country reportingis necessary to reveal the misalignment between where real economic activity takes place, and where profits are declared for tax purposes. Key failures include the following:
The OECD standard does not require that the data be reconciled with the published, global consolidated accounts of multinationals.
A number of countries do not use the agreed reporting template.
Most lower income countries never get access to the data – because multinational company headquarters are rarely based there.
The OECD committed to publishing the data from 2019. However, the OECD has only published the information twice – and then in an aggregated and anonymised manner.
Many countries refuse to give permission for any of their data to be made public, which renders it powerless to secure accountability for either companies or the jurisdictions that facilitate their profit shifting and as a result more than US$1 trillion of corporate profit continues to be shifted to tax havens.
The OECD is yet to deliver a response to its 2020 review, when investors and civil society were nearly unanimous in calling for the adoption of the much more robust global reporting initiative standard.
As with the automatic exchange of information, only 9 of the 54 African countries and 2 of the 46 least developed countries have been able to join the process; and even these do not enjoy full access as other countries pick and choose who to provide information to.
To date not a single low income country has received any information pursuant to country by country reporting.
Example – UK U-turn impedes global tax transparency
The UK blocked the OECD from publishing its aggregated country by country data in a timely manner in 2022, reneging on its 2016 commitment to do so. The UK is estimated to have missed out on at least £2.5 billion in corporate tax a year as a result.
A minimum global tax rate to counter base erosion and profit shifting. A minimum global tax rate has started gaining some traction, but in eg the EU it is being introduced at 15 per cent (compared to the 21-25 per cent that had been discussed), and only for groups with revenues of more than €750 million a year. The USA has noted its unwillingness to adopt a minimum global rate in principle. Also, as Switzerland has shown, it is being used to even further entrench tax havenry, rather than eradicate it.
While these changes have only partially been introduced, and then at a snail’s pace, they do show that norm shifts are possible – including developing genuinely inclusive alternatives in other spaces such as the UN.
Early proposed drafts for a UN tax convention, and the UN High Level Panel on International Financial Accountability, Transparency and Integrity, have all recommended implementing undiluted, fully robust versions of the above solutions as well as other long called for policy solutions for addressing global tax abuse and financial secrecy.
Key issue 5: OECD members are the key contributors to tax abuses
The OECD is not able to rein in abusive practices by its members. As we show in our State of Tax Justice reports for 2020,2021 and 2022 and now most recently for 2023, OECD member countries and their dependent territories are consistently responsible for some 70 per cent of global cross border corporate profit shifting and tax abuse, and some 90 per cent of all taxes lost to offshore evasion by high wealth individuals in tax havens.
Just policies do not deliver just outcomes when they are delivered through institutions that are inherently biased. As in the title of Audre Lorde’s famous essay, “The master’s tools will never dismantle the master’s house”.
Why UN leadership?
The UN is the right institution to shepherd global tax policy development: it is the single most representative global body; its specialist technical bodies and legal frameworks were designed precisely to coordinate and harmonise global practices; and it secures accountability through enforceable binding agreements and reporting mechanisms.
Representation
The UN is the single most representative global body – only two countries in the world are not members (the Vatican City, and Palestine.)
Its extensive membership gives it a global perspective of global issues, including the sustainable development goals, and how trade and financial systems impact their achievement. In a world where our financial systems are characterised by the race to the bottom – seeing who can tax multinationals the least – and where success is simply measured by the bottom line for shareholders, this more balanced view is more critical than ever. The UN’s Sustainable development Goal 17, for instance, specifically emphasises the revitalisation of global partnerships for sustainable development, including promoting a universal, rules-based, open, and non-discriminatory multilateral trading system.
Importantly, because it is also home to the many smaller or lower income countries, it also considers the spill over effect of policies on countries that are often marginalised during policy development.
Most recently, the European Parliament recognised the need to finally introduce a globally inclusive process for determining tax standards in its resolution calling on EU members states to back negotiations for a UN tax convention.
Specialist agencies
The UN has a rich history of establishing and overseeing some of the most impactful specialist agencies, that deal with highly complex, technical issues. A number of these focus on trade and commerce. This is important in this context: taxation is (often) just the flip side of trade. Tax, trade and debt are intimately intertwined, to the point where the one cannot exist without the other.
Examples of the UN’s specialist bodies and agencies include:
The United Nations Convention on Climate Change, which established an international environmental treaty to combat “dangerous human interference with the climate system” – work that was only possible at the UN level.
The UN’s DESA secretariat for sustainable development goals.
The UN Committee of Experts on International Cooperation in Tax Matters, which provides guidance and promotes cooperation among countries. It serves as a platform for countries to exchange views, share experiences, and develop international tax standards. The committee has contributed to the development of important documents like the UN Model Double Taxation Convention and the Transfer Pricing Manual.
The General Agreement on Tariffs and Trade – the precursor to today’s World Trade Organisation, which is the primary international organisation responsible for governing global trade. It provides a platform for negotiations, sets trade rules, and resolves trade disputes among member countries.
UNCTAD, which focuses on trade and development issues, particularly with respect to developing countries. It provides research, policy analysis, and technical assistance to help countries integrate into the global economy, address trade-related challenges, and promote sustainable development-oriented trade policies.
The International Trade Centre, a joint agency of the WTO and UNCTAD, supports particularly small and medium-sized enterprises in developing countries to participate in international trade. It offers market intelligence, trade promotion services, capacity-building programs, and trade-related technical assistance.
The UN Development Programme, which also engages in trade-related activities to support inclusive and sustainable economic growth. It provides policy advice, capacity-building, and project support to help countries integrate trade into their development strategies and foster trade-related development outcomes.
UNIDO, the United Nations Industrial Development Organisation promotes inclusive and sustainable industrialisation. It works with member states to enhance their productive capacities, to improve competitiveness, and to integrate into global value chains.
The UN’s various regional economic commissions, which play a regional role in promoting economic cooperation, including trade, among its member states They provide a platform for dialogue, policy analysis, and technical assistance on trade-related issues like trade facilitation, standards, and regulations.
The International Organisation for Standardisation which develops and promotes global standards for products, services, and systems, enhancing compatibility and reducing technical barriers to trade.
Technical legal frameworks and conventions
In addition to its specialist agencies, the UN has promulgated a variety of conventions which focus on a wide range of global challenges, including human rights, environmental protection, disarmament, health, labour rights and gender equality. The conventions provide a platform for dialogue, exchange of information, cooperation, technical assistance and capacity building between countries. They are important, not just from a legal perspective, but also in the way they foster a sense of collective responsibility and solidarity, and for their ability to act as catalysts for more progressive and inclusive approaches to issues.
Notable policy successes include the Universal Declaration of Human Rights, the Sustainable Development Goals, the Paris Agreement under the UN Framework Convention on Climate Change, and the Nuclear Non-Proliferation Treaty. By addressing these challenges collectively, conventions foster a global response that transcends national boundaries and promotes international cooperation.
There are multiple examples that highlight the value of multilateral intergovernmental dialogue. These have resulted in several progressive moves towards intergovernmental cooperation and inclusive negotiations for tax justice, progress towards the sustainable development goals and the realisation of rights, as proposed by the African nations, G77 and others. Initiatives involving strong multilateral, inclusive engagement focusing on reform in international tax include:
Coordination and collaboration between the Africa Group and G77 at the UN, resulting in this most recent very historic vote at the UN;
The High Level Panel of the African Union and the UN’s Economic Commission for Africa on illicit financial flows out of Africa;
The UN Secretary General’s initiative on financing for development during the pandemic; and
The UN’s High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda.
The UN’s trade agreements in particular have fundamentally and indisputably improved global trade. These include multilateral trade negotiations which were critical in reducing trade barriers and promoting the liberalisation of international trade, like:
The Uruguay Round (1986-1994), which led to the creation of the World Trade Organisation.
The General Agreement on Tariffs and Trade.
The Trade Facilitation Agreement, which provides a common framework for countries to implement efficient and transparent trade facilitation measures, reducing costs and delays.
Regional trade agreements that contribute to harmonising trade rules and promoting regional economic integration.
The UN’s technical expertise underpins its focus on technical assistance and capacity development to all of its member countries.
Accountability
Having enforceable standards is important. Once a convention or agreement is adopted, member states are legally bound by its provisions, and are required to develop national legislation, policies, and measures that align with the convention’s objectives.
Transparency
Because the UN’s processes and engagements are largely transparent, it is easier to hold it – and its members – accountable for the decisions they make, and for their adherence to those decisions. Its reporting mechanisms and monitoring bodies allow the broader public to understand the extent to which member countries are meeting their obligations, and to hold member states accountable for their commitments and obligations.
Recommendations
The current way of doing things has failed us.
In the late autumn, countries have an opportunity to vote on formally starting negotiations on a UN tax convention that would establish a new UN leadership role on international tax. This is a once-in-a-century, realistic opportunity to develop a genuinely inclusive and just global tax convention with globally inclusive standards. We finally have a real chance to secure agreement on and implement solutions that are effective in curbing tax abuse by multinationals and high net worth individuals, and other illicit financial flows. The Tax Justice Network’s advocacy efforts centre around the following recommendations:
Establish a new, fully resourced intergovernmental tax bodywithin the United Nations.
Establish a Centre for Monitoring Taxing Rights at the UN to raise national accountability for illicit financial flows and tax abuse suffered by others.
Develop a genuinely inclusive and just United Nations global tax convention with globally inclusive standards, that also considers spill over impacts on lower income countries, and that secures just taxing rights for all.
Secure agreement on and implement solutions that are effective in curbing global tax abuse by multinationals and high net worth individuals, and other illicit financial flows. These could include, for instance, solutions that the Tax Justice Network has long advocated for: • Automatic exchange of information on financial accounts between countries, removing barriers of reciprocity that currently impede lower income countries’ access to this crucial public good. • Beneficial ownership transparency of the ‘flesh and blood’ owners of assets, trusts, foundations and other forms of wealth. This should include public beneficial owner registers (for the wealthiest), building towards a single interconnected global system. • Comprehensive and publicly available country by country reporting for all multinational companies. • A minimum effective corporate tax rate, based on the global profits of each multinational group and allocated according to a formulary apportionment model that ensures taxes are paid in the jurisdictions of actual economic activity. • A global asset register, linked to country level asset registers, to track ownership by high wealth individuals.
A UN tax convention offers the best chance in a century – in fact the only real chance in a century – to establish globally inclusive rules and standards to end cross-border tax abuse.
You’d be forgiven if you clicked on the corporate governance structure of a multinational company and mistook the download plans for a world tour itinerary. You may find yourself starting in London on your way to Lilongwe, with layovers in Amsterdam, Road Town and Dubai, wondering how much of Virunga National Park would need saving for your jetsetting. The Man in Seat Sixty-One would be hard pressed to find a rail route for you, even if you had all the time in the world.
Places, spaces, not usually connected, at least not by The Lonely Planet or your favourite travel Vlogger, are often top destinations for subsidiaries of some of the largest multinational corporations. And it’s not because Meta’s sharing your data across field and fountain. Nor is it because Glencore’s choosing a convoluted route for copper. Rather, hidden carefully within a multinational’s books, are the footprints of finance, seeking the path of least resistance for profit.
Dodging taxes through dodgy havens
This quest to dodge taxes is not new, but it’s taken on epic proportions in the last century with digitalisation, and the rise of the multinational corporation and its accomplice, the tax haven. Every year, countries are losing an estimated $312 billion due to cross-border corporate tax abuse, and as much as 40% of corporate profits are shifted into tax havens.
Tax havens are not only, or even primarily, the paradise island, offshore sunny, sandy holiday destinations, but countries, cities and even smaller zones set up to give non-residents—both companies and people—a chance to escape the tax rules of the country where they actually do most of their business, or where they live.
And tax havens don’t like you to know what they’re up to. Some of the biggest contributors to financial secrecy are in fact the USA, the UK with its network of overseas territories and crown dependencies, and Switzerland, according to the Tax Justice Network’s Financial Secrecy Index. This ranks countries based on the financial secrecy services they offer and the scale of financial flows crossing their borders; tax havens and secrecy havens, extracting wealth from the economy.
Count those corporate taxes—and keep our kids in school
Vodafone may have wanted to improve its image by publishing country by country reports—reports revealing where its profits and losses are booked, and taxes paid at the country level. As a result of Vodafone’s tax payments over 5 years, more than 850,000 children spent an extra year in school, and over 54,000 children and over 3,500 mothers survived in the Democratic Republic of Congo, Ghana, Kenya, Lesotho, Mozambique, and Tanzania. We can estimate this when working from the records of how money on public services was spent in the past, according to the latest research by the University of St Andrews and University of Leicester.
Of course, this is not to say that Vodafone didn’t join in the usual multinational barn dance and take steps to avoid its taxes. It’s not possible to rule out tax dodging just by poring over their public country by country reports. But these PDFs are powerful things, especially for tax officials who are the good guys when it comes to revealing whether multinational corporations pay their fair share of tax. That’s because public country by country reports show where Vodafone books its profits and pays taxes across its entire corporate group; a red flag can be raised if profit is being booked far from where most sim cards are registered and calls are being made. It’s a firing gun that sets off the tax authority’s audit race.
Public country by country reporting and the rocky road to reform
At Amazon’s AGM in May, one-fifth of independent shareholders backed a proposal for Amazon to publish its country by country accounts. Efforts like this are not new. Since the 1950s, newly unshackled Latin American, African and Asian countries noticed political decolonisation wasn’t the be all and end all. Multinationals from former imperial powers still controlled much wealth, capital and resources thanks to history, colonial trickery and skulduggery. Independent nations joined forces to forge solutions through the UN. These were the beginnings of better corporate disclosures, including on tax, to right past injustices still poking holes in the public purse.
But by a sleight of hand, elaborated by Nikki J. Teo in her new book The United Nations in Global Tax Coordination: Hidden History and Politics, the richest nations through their club—the Organisation for Economic Co-operation and Development (OECD), or its predecessor the Organisation for European Economic Co-operation—took over the mantle from international tax reformers at the UN. The OECD has made efforts to appear progressive, including establishing a secondary group of the ‘non-rich’ in a so-called “inclusive framework”, but, of course, all the while protecting their interests, their satellite tax havens, and their multinationals.
On specific reforms, this is clear. If you consider public country by country reporting a feast of your favourite home-cooked meal, then the OECD’s current form are left-over crumbs, fingers crossed you won’t spend the night with a growling stomach.
The OECD does collect country by country financial information. But it’s only for the very largest multinationals. Their tax truths are hidden, because it’s published in an aggregated and anonymous way, and details are only accessible to tax authorities who jump through many, many hoops. Read: most African nations do not have access.
The battle continues
Australia shook the corporate world to its core by deciding to introduce public country by country reporting legislation: one in five companies around the globe would have had their tax truths exposed, enabling tax authorities to pore over those PDFs that had been denied to them. But the Tax Justice Network says, “the OECD may have become an outright proponent of opacity and blocker of progress, lobbying Australia to keep multinational corporations’ profit shifting behaviour out of the public eye.” The Financial Times has confirmed the OECD pressured Australia to water down rules.
Inspired by memories of bold pan-African forebears, and by the horrors of insufficient public finance, African nations are turning to the UN once more to ensure multinationals pay their fair share of tax. In November 2022, the Nigerian delegation on behalf of the African Group at the UN put forward a resolution to start intergovernmental negotiations on international tax with the prospects of a governing body at the UN.
The US and its rich allies tried to erase the most crucial paragraph in a last minute ninja move, but with the ancestors on their side, the African resolution passed by consensus. As the UN chief pools wisdom and advice this year for his much-awaited Tax Report ahead of a vote by all nations of the world, we should expect more tricks and tactics by the rich handmaidens of multinational corporations.
There are several typical transparency tools to help address illicit financial flows related to tax abuse, money laundering or corruption. Some are old, some are new, but for the most part they have included measures like filing of tax returns, publication of companies’ accounts, filing information on corporate owners and beneficial owners, automatic exchange of bank account information, exchange of tax rulings, transfer pricing documentation, and country by country reports. They all shed light on disclosing either the situation before an illicit financial flow may have taken place, or the outcome after it. They can also include a partial snapshot of what is currently taking place.
However, making sense of all of this information can be challenging. It is up to tax or money laundering authorities and other stakeholders to connect the various pieces of data reported by taxpayers in order to understand what has happened, and why or how, so they can challenge it. It’s similar to a magician’s trick. If you see a dove fly out of a magician’s hat, even though you know it is just a trick, you may not quite be able to figure out how it was done.
Consider the situation where a company declares zero taxable profit, with consequently no taxes payable. At first glance, it might suggest tax avoidance or evasion, but that may not necessarily be the case and there may be a good reason for it: for instance, in the case of a tourism company that was about to go bankrupt during Covid-19 lockdown. However, in other cases, for example when a successful multinational declares zero taxable income, that may be more suspicious. Still, proving there was some kind of tax abuse scheme in operation is extremely challenging, not least because of the lack of comparable prices of goods and services exchanged between independent companies, or because of the sheer complexity of the transactions or relationships involved in the scheme.
Even if authorities received more “data” on how these prices were determined or why a complex transaction was necessary, understanding it and being able to challenge it is a completely different story. In practice it can be extremely difficult to distinguish between business practices and transactions that have commercial substance and those that are rather artificially crafted just to reduce tax payments; to differentiate substance over form; or whether a transaction lays claim to tax benefits that were never intended by the rules. Even if authorities are able to eventually understand and object to a transaction or scheme, they need to spend considerable time and resources against armies of accountants and lawyers ready to bury them with confusing or irrelevant documents.
Imagine if instead authorities could simply ask these enablers to disclose not just the schemes they are promoting and engaging in to reduce taxes for their clients, but also the precise details on how the schemes work (the transactions, the parties involved, as well as the legal frameworks that apply). What’s more, imagine if authorities could even obtain the list of taxpayers who are using these schemes. It would be the equivalent to asking a magician to reveal their tricks.
It sounds too good to be true, but that is precisely what mandatory disclosure regimes are all about. Disclosing both the schemes and the taxpayers who used them would significantly improve the compliance risk management particularly of larger multinationals and high net worth individuals, by helping tax authorities to understand the relative risks posed by the respective taxpayers, and by being better able to target corporate audit plans. This can actually decrease the compliance costs for those taxpayers who have not engaged in the higher risk schemes.
A short history
Mandatory disclosure regimes are not new. Countries including the US and Canada have been implementing them since the 1980s, especially to target mass promotion of tax abusive schemes (eg “acquire this type of land, say that it was worth more than what you paid for it, and then get a higher tax deduction”). It was only when the OECD’s Base Erosion and Profit Shifting measure promoted mandatory disclosure rules under BEPS Action Point 12 that mandatory disclosure regimes got a revival. Although this Action 12 is not among the minimum requirements required by the OECD to be implemented (so most countries feel no pressure to adopt them), the EU established a framework for mandatory disclosure rules related to tax avoidance under the amendment to the Directive on Administrative Cooperation, known as DAC 6.
More narrowly, the OECD has also published its own version of mandatory disclosure rules in relation to schemes designed to circumvent the automatic exchange of bank account information (under the Common Reporting Standard or CRS) or to hide the beneficial owner behind opaque structures. While the EU also incorporated these schemes related to avoiding automatic exchanges and hiding the beneficial owner into its framework (DAC6), not many other countries have followed.
Despite the OECD focus on automatic exchange of information, mandatory disclosure rules about schemes to hide the beneficial owner are extremely relevant for beneficial ownership transparency, regardless of whether or not it is also related to circumventing automatic exchange of information. Close to 100 jurisdictions have beneficial ownership registration laws and face several challenges in verifying information. Mandatory disclosure rules could help improve verification and tackle complex ownership structures used to hide or confuse the identity of the beneficial owner, such as the abuse of trusts.
Why it is important
According to the Tax Justice Network’s State of Tax Justice Report published in 2021, multinational corporations were shifting an estimated US$1.19 trillion worth of profit into tax havens a year, causing governments around the world to lose US$312 billion a year in direct tax revenue. These illicit financial flows often rely on complex schemes that are difficult to prosecute for criminal evasion, but nonetheless are considered abusive and illegal by the tax administration.
Indicator 13 of the Corporate Tax Haven Index which assesses whether jurisdictions require the disclosure of tax schemes, explains why this is important: “First, the reporting requirements help tax administrations to identify areas of uncertainty in the tax law that may need clarification or legislative improvements. Second, providing the tax administration with early information about tax avoidance schemes allows it to assess the risks schemes pose before the tax assessment is made and to focus audits more efficiently. Third, requiring mandatory reporting of tax schemes is likely to deter taxpayers from using these tax schemes because they know there are higher chances that files will be flagged, exposed and assessed accordingly. Fourth, such mandatory reporting may reduce the supply of these schemes by altering the economics of tax avoidance of their providers because a) they will be more exposed to claims of promoting aggressive tax schemes, increasing the risk of reputational damage, and b) their profits and rate of return on the promotion of these schemes is likely to be reduced because schemes are closed down more quickly. This is all the more true if contingency fees are part of contracts.”
A new guide on mandatory disclosure rules
Together with Katrina Petrosovich, I have co-authored a 2022 publication by Apex Consulting (commissioned by GIZ on behalf of the German Ministry for Economic Cooperation and Development, known as BMZ) that provides extensive guidance on mandatory disclosure rules. It analyses and reviews the EU and OECD standards as well as the frameworks implemented by 9 countries (Argentina, Canada, Germany, Guernsey, Mexico, Portugal, South Africa, the UK and the US). It also reviews the attempts of other countries that have tried to implement disclosure regimes (eg Brazil, Colombia and Ecuador). The guidance offers an explanation and description of the possible options for:
Who must report (eg enablers and/or taxpayers);
The scope of reportable cross-border arrangements;
The scope of taxes covered by the disclosure regime (eg “any tax” or only income and capital gains tax);
The hallmarks of reportable arrangements (eg confidentiality, premium fee, hybrids, use of non-cooperative jurisdictions, etc);
When information must be reported (eg before promotion, before implementation, etc);
Possible grouping of arrangements and taxpayers (eg issuing a scheme ID);
What information must be reported (eg list of taxpayers, details of the scheme, involved legal frameworks, etc);
How to file information; and
Consequences of compliance and non-compliance.
The guidance also recommends best practices based on lessons learnt and the challenges faced by implementing countries, such as:
Requiring both enablers and taxpayers to report information;
Requiring information to be reported as soon as possible, eg before promotion of the scheme;
Requiring enablers to alert taxpayers that the scheme has not been approved by the tax authority;
Requiring reporting of a list of taxpayers and scheme identifiers to easily match them,
Establishing electronic reporting to allow for live analysis of the most common schemes, most common taxes or regulations involved, and the identity of the most popular enablers (in terms of number of clients, etc). This would allow tax authorities to promptly address the risks, by changing regulations, alerting taxpayers to the risks, or demanding enablers stop promoting abusive schemes;
Establishing dynamic lists (regularly updated), especially “black lists” of abusive schemes that should be banned (eg not promoted or implemented) as well as “white lists” (schemes that are considered legal and valid by the tax administration that need not be reported);
Addressing the issue of professional confidentiality and client-attorney privilege to prevent future legal challenges;
Monitoring avoidance schemes (eg Mexico used thresholds for “personalised” schemes below which schemes need not be reported. In response enablers started re-classifying “general” schemes as “personalised” in order to avoid reporting them.)
The guide can be downloaded here. It will contribute to promoting the adoption of mandatory disclosure regimes in all countries, both to tackle tax abuse as well as secrecy. There is also an Excel document with a reference to the specific legal provisions in each of the countries reviewed.
It won’t be easy – but it’s doable
Writing a law to establish a mandatory disclosure regime may be easy. But withstanding the opposition from the private sector (enablers) is not. Based on the experience of other countries, lawyers, accountants, tax planners and corporate service providers will lobby lawmakers, file lawsuits to declare that the reporting regime is unconstitutional, invoke client-attorney privilege, professional secrecy and anything else they may come up with (including potentially high compliance costs).
Facing this opposition won’t be easy. It will require more awareness-raising campaigns, a wider adoption by more countries, and training for authorities and the judiciary on the importance and legality of these schemes.
There are success stories that mandatory disclosure rules can be based on. For instance, most financial institutions and professionals are considered “obliged entities” bound by anti-money laundering recommendations (although lawyers in some countries are still able to circumvent this). This means that most financial institutions must already report to authorities (eg the financial intelligence unit) whenever there is a suspicion of money laundering or financing of terrorism. In the EU, financial institutions are also required to report discrepancies to the local beneficial ownership registries. Indeed, mandatory disclosure rules have been implemented in some countries for decades.
Conceptually, one could indeed argue that the promoters of tax schemes should have no problem disclosing them. If indeed their purpose is simply to minimise the amount of tax payable through legal constructs then disclosure could hardly be seen as a threat to their business.
Conclusion
Authorities have access to a trove of data, but it’s often hard to interpret or use it to tackle illicit financial flows. The best complement to the pieces of information to which authorities already have access (eg tax returns, financial statements, account balance and income held in offshore banks, etc) is to require enablers to disclose, describe and explain schemes they are promoting and implementing that allow taxpayers to abuse the tax system, as well as individuals to hide their ownership of legal vehicles.
Lawyers and accountants will of course oppose this, but many countries have already succeeded in implementing these information regimes. The wider the use of mandatory disclosure rules, the more they will become accepted (as has happened with the most recent transparency advances that were initially resisted). Asking enablers to reveal their tricks is not just a direct contribution to tackling illicit financial flows, it can even work indirectly, by discouraging enablers and taxpayers from engaging in these schemes to begin with, if only to avoid the cost of reporting.
Half a year later, EU member states are split in their response to the European Court of Justice’s decision to suspend the clause that guaranteed public access to beneficial ownership registers in the EU. Our new analysis shows that the split in responses mirror countries positions on our Financial Secrecy Index, which ranks countries on how complicit they are in helping individuals to hide their finances from the rule of law.
EU countries that shut down their registers in response to the Court’s ruling on average supplied three times more financial secrecy to the world than those who refused to shut down, according to our analysis of Financial Secrecy Index data that was collected prior to the ruling.
The worst secrecy jurisdictions took the ruling as an opportunity to become even more secretive, or to postpone transparency advancements (including British overseas territories which weren’t even bound by the ruling). However, several brave countries understood that they still had sufficient reasons to keep their registers open.
Currently, over a third of EU member states have kept their registers public.
A horrible setback
At the end of 2022, the Court of Justice of the European Union issued a ruling with significant implications for financial transparency and human rights. The ruling invalidated a crucial provision in the Anti-Money Laundering Directive which required member states to make information on the beneficial ownership of corporate and legal entities accessible to the general public. Activists, researchers, and journalists denounced this decision to throw the European Union back into the dark ages of financial secrecy.
The ruling is a major setback for financial transparency. Public beneficial ownership information is a keystone of financial transparency and plays a crucial role in combating illicit activities such as money laundering and tax evasion. By enabling anonymous oligarchs, tax abusers and criminals to hide their ill-gotten funds, financial secrecy undermines accountability and the rule of law. It allows these individuals to operate within societies without facing consequences for their actions. The idea that they could put their cloak of secrecy back on has shaken those concerned with financial transparency.
The importance of public access to beneficial ownership information to combat illicit financial flows is hardly a radical idea (even if it may have been when the Tax Justice Network first started advocating for it many years ago). Since then, and as the evidence of its positive impact piles up, several international organisations and standard setting bodies have highlighted the value of beneficial ownership transparency. The Financial Action Task Force, in its analysis of the best practices in the implementation of beneficial ownership frameworks, recognised the important role of public beneficial ownership information to speed up the identification of errors in registered data, thanks to the engagement of civil society actors.
A recent study published by the International Monetary Fund also highlights the importance of public beneficial ownership information, both for verification purposes but also for guaranteeing that all authorities (both domestic and international) have quick access to this vital information.
It’s worth noting here that beneficial ownership transparency is as robust and useful as the beneficial ownership laws countries put in place. That is, it depends on what information the laws mandate should be collected and made available to the public. We discuss this in more detail in our roadmap to effective beneficial ownership registration.
There is nothing controversial about publishing information on who the real owners of companies and other legal vehicles are. Most countries already make shareholder information publicly available in their commercial registers. For most companies, a business’s shareholder, ie legal owner, and beneficial owner (the person who owns, controls and/or benefits from the company) are the same person. Since commercial registers make information on legal owners public, the only beneficial owners that can remain anonymous are those that create indirect complex ownership structures, such as ones involving shell companies in secrecy jurisdictions, to conceal their legal ownership of businesses they own, control and benefit from. It is mostly these complex, indirect structures that cause concerns over the impact of the Court of Justice’s ruling.
To close or not to close: the immediate aftermath of the Court of Justice’s ruling
In the aftermath of the ruling, a curious spectacle unfolded. Some EU member states closed public access to their beneficial ownership registers almost immediately. Other countries took more time to reflect on the decision’s impact. Several countries eventually concluded that the appropriate way forward was to keep public access to their registers in place. Over half a year later since the ruling, more than a third of EU countries still provide public access to their beneficial owner registers.
Estonia, Slovakia, France, Denmark, Bulgaria, Czechia, Slovenia, Latvia, and Poland, have so far chosen to keep their public registers open, making beneficial ownership information freely available to the public. Estonia has gone a step further by removing the one-euro fee previously charged for accessing this information. This is a welcome improvement, since fees, no matter how low they are, can make some investigations prohibitively expensive when they involve multiple legal structures.
Latvia has been particularly outspoken about the rationale behind the decision to keep their register open. The government’s communiqué holds that public access to beneficial ownership data of legal entities is crucial for fair and transparent financial sector practices. In another communiqué, the Latvian Minister of Justice also stressed that “openness of information promotes a legal business and non-governmental sector environment, reduces the risks of corruption, ensures the implementation of sanctions, thereby strengthening the stability and security of our country.”
On the other hand, other countries may have found in the ruling an opportunity to quickly shut down their registers and keep beneficial ownership information opaque. Since the ruling, Austria, Belgium, Cyprus, Germany, Finland, Greece, Ireland, Luxembourg, Malta and the Netherlands have suspended public access to beneficial ownership information.
For some countries, though, their positions are unclear. In the case of Portugal, Lithuania, Croatia and Romania, access to the beneficial ownership register is limited to those who possess an e-Identification or are nationals of those countries. We have therefore been unable to verify whether the information can still be publicly accessed. Other countries, such as Finland, Spain and Italy, never set up public registers in the first place (even when in some cases their legislation required them to do so), and as a result the court ruling has had little impact.
Figure 1. Status of beneficial ownership registers as of 28 June 2023
Countries’ decisions vs their Financial Secrecy Index rankings
Some commentators have tried to argue that the sole objective of shutting down public access to the registers was protecting the right to privacy. However, the Financial Secrecy Index, which identifies the world’s biggest suppliers of financial secrecy, provides some valuable context to countries’ responses to the ruling. The latest edition of the index was published in May 2022, months before the ruling.
The average ‘FSI Value’- a measure of how much financial secrecy a jurisdiction supplies – of countries that shut down public access to their registers- is more than three times higher the average value of countries that kept their registers publicly accessible.
When looking at ‘Secrecy Scores’ instead – a measure of how much scope for financial secrecy a jurisdiction’s laws theoretically allow – the average secrecy score of countries that closed their registers was 12 per cent higher than the average secrecy score of countries that kept the register open. More information on how these Financial Secrecy Index metrics work is available here.
Looking at countries’ rankings on the Financial Secrecy Index further confirms the pattern. All the EU countries that rank in the top 20 positions on the Financial Secrecy Index 2022 decided to revoke public access to their registers (Luxembourg, Germany, Netherlands, Cyprus). Of the five EU countries that rank closer to the bottom of the index, four have kept their register open (Slovakia, Bulgaria, Estonia, Slovenia), while Lithuania’s position is unclear.
Rankings on the Financial Secrecy Index 2022 were calculated before the Court’s ruling, but these subsequent events sustain its findings about which countries pose a serious risk to transparency and corroborate the pattern for financial secrecy the index demonstrates these countries to have.
There is also a geographical divide between the countries that decided to keep their registers open, and those that shut it down. Eastern European countries are among those that are making the biggest effort to keep their registers open, including Latvia.
The future of beneficial ownership transparency
Even though progress towards transparency of legal vehicles is a somewhat thorny issue, those who seek to present the ruling as a decisive turning point against beneficial ownership transparency are simply wrong. At the European Union level, strong, domestic mobilisation is required to keep public access to the registers open. Yet, throughout the world, most countries have adhered to at least some sectoral commitments to publish beneficial ownership information, be it for extractive industries, in the context of public procurements, or among the recipients of Covid-19 funds. When in November 2022 we published Beneficial ownership registration around the world, more than 100 countries were adhering to at least partial disclosures of beneficial ownership information.
The United Kingdom, no longer a part of the EU, kept its register open to the public. So have other eastern European countries, such as North Macedonia and Albania. After the ruling, the UK government even made a public statement saying that, while corporate ownership transparency could represent an intrusion on privacy rights, “the intrusions were limited and necessary in a democratic society for the prevention and detection of crime and in for the economic well-being of the country”. Limiting access to those with legitimate interest, the UK government argued, could undermine “transparency and thus the public interest benefits, in terms of crime prevention/detection and economic well-being of the country, that go with it.”
Regional examples, such as Nigeria and Ghana in Africa, Ecuador in Latin America, and Indonesia in Asia, show that progress is not limited to Europe. Canada is similarly debating a bill that would make beneficial ownership information available to the public, as is Australia.
Beneficial ownership transparency was recently recognised by UN Secretary General Antonio Guterres as a key policy area necessary to achieve the sustainable development goals. According to a Secretary General’s policy brief , which presents a roadmap to reforming the international financial architecture, “countries should strengthen beneficial ownership transparency systems with broad coverage, automated verification, and publication of information. Such registries would be game changers in efforts to properly tax high-net-worth individuals and multinational enterprises.”
In conclusion, beneficial ownership transparency remains a minimum standard for effective beneficial ownership registration frameworks. Examples from countries of the European Union show that even in the backdrop of the Court’s ruling, countries may find ways to keep registers publicly accessible, thus upholding transparency principles. Efforts towards beneficial ownership transparency are ongoing worldwide, and it is crucial for countries to fulfil their commitments, to combat financial crimes, and to achieve the sustainable development goals.
Welcome to our Spanish language podcast and radio programme Justicia ImPositiva with Marcelo Justo and Marta Nuñez, free to download and broadcast on radio networks across Latin America and Spain. ¡Bienvenidos y bienvenidas a nuestro podcast y programa radiofónico! Escuche por su app de podcast. (All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.)
En este programa con Marcelo Justo y Marta Nuñez:
Los 10 mitos sobre los impuestos en América Latina y el mundo, la nueva miniserie de Justicia Impositiva.
Vemos el mito número 1: “para que la economía crezca hay que achicar al estado”
Analizamos también caminos alternativos para recaudar impuestos de las grandes corporaciones como el ensayado exitosamente en México
Y qué va a pasar con las elecciones en Ecuador y el gobierno de Guillermo Lasso
Marisa Duarte: magister en Sociología Económica de la Universidad de San Martín en argentina y doctora por la Universidad de Barcelona
Oscar Ugarteche, director del Observatorio Económico latinoamericano, OBELA, profesor de la Universidad Nacional Autonoma de Mexico, la UNAM y autor de Historia Critica del FMI
Pablo Iturralde, director del Centro de Derechos Económicos y sociales, el Cedes
Welcome to the 67th edition of our Arabic podcast/radio show Taxes Simply الجباية ببساطةcontributing to tax justice public debate around the world. It’s produced and presented by Walid Ben Rhouma and is available on most podcast apps. Any radio station is welcome to broadcast it for free and websites are also welcome to share it. You can follow the programme on Facebook, on Twitter and on our website. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here.
“الشعب يريد طعاما والسلطة تشتري أفيالا” في العدد #67 من بودكاست الجباية ببساطة حاور وليد بن رحومة الباحث والصحفي المصري خالد منصور صاحب مقال “الفيل يا مولاي السلطان – عن سياسات الليبرالية الجديدة في بلادنا غير السعيدة” حول مدى نجاعة السياسات العمومية في الإجابة على حاجيات الشعوب الحقيقية في مصر والمنطقة العربية. زيادة على جولة في أخبار لبنان، تونس، العراق، الجزائر، مصر وعدد من الدول الإفريقية.
In episode #67 of our Taxes Simply podcast, Walid Ben Rhouma interviews journalist and Egyptian researcher Khaled Mansour, author of the recently published article on Al Manassa “The Elephant, Your Majesty, the Sultan: on neo-liberal policies in our unhappy countries.” They discuss economic policies governing the Arab region and the effectiveness of public policies in responding to the real needs of the people in the region. Walid also presents the top global economic news for the month of June 2023.
Welcome to our monthly podcast in French, Impôts et Justice Sociale with Idriss Linge of the Tax Justice Network. All our podcasts are unique productions in five different languages every month in English, Spanish, Arabic, French, Portuguese. They’re all available here and on most podcast apps. Here’s our latest episode:
Dans cette édition de votre podcast en français, produit par Tax Justice Network, nous avons le plaisir de vous présenter une discussion avec le Dr Olivier Herindrainy Rakotomalala, Ministre des Mines et des Ressources Stratégiques de la République de Madagascar. Nous abordons avec lui la question de l’application des exigences de la norme ITIE par son pays. Cette norme vise à garantir une exploitation transparente et équitable des ressources extractives.
Notre entretien avec le Dr Rakotomalala a eu lieu en marge de la Conférence Internationale de l’ITIE à Dakar, où Tax Justice Network a joué un rôle actif.
Il est important de rappeler que les exigences de l’ITIE traitent des questions cruciales dans la lutte pour la justice fiscale. Parmi ces questions figurent l’amélioration de l’intégrité dans la gouvernance des ressources, la transparence totale concernant les bénéficiaires effectifs, et l’amélioration des cadres fiscaux régissant le secteur extractif. Cette dernière inclut la lutte contre les prix de transfert abusifs et d’autres formes de flux financiers illicites à motivation commerciale et fiscale.
~ Transparence dans le secteur extractif: Madagascar y croit! #51
Vous pouvez suivre le Podcast sur:
Le télécharger pour l’écouter hors connexion sous le sous ce lien
Et pour ceux qui ont l’application Stitcher et iTunes ect
Si vous souhaitez recevoir cette production ou être média partenaires ou simplement contribuer, vous pouvez nous écrire à l’adresse Impô[email protected]
Until now, the tax justice and climate justice movements have mostly tended to operate in isolation from each other, despite having many common goals and objectives. This is the first in a series of blogs examining underexplored issues at the intersection of tax justice and climate justice. At the heart sits seeking to redress historic and ongoing inequalities in the exploitation of planetary carbon boundaries, and in the unfair distribution of ongoing human costs. Carbon tax justice uses progressive policies to uncover and reduce inequalities, significantly reduce emissions and facilitate a just transition.
In this blog we explore how climate justice and tax justice advocates can unite and demand beneficial ownership transparency for carbon-intensive industries, especially for listed companies and investment funds.
Who are the beneficial owners of the climate crisis?
Beneficial ownership transparency means identifying those individuals who ultimately own, control or benefit from legal vehicles such as companies, trusts or foundations. It is a transparency tool generally associated with tackling money laundering, tax evasion, corruption and the financing of terrorism. But there’s more to it.
Until now, it has been almost impossible to know who the beneficial owners of the most carbon-intensive companies are. A litany of loopholes prevent identifying real owners: from high thresholds in the beneficial ownership definition (allowing anyone with less than 25 percent of shares in a company to avoid scrutiny) to directly exempting investment funds or listed companies. For instance, the Extractive Industry Transparency Initiative (EITI) standard requires disclosure of only the name of the relevant stock exchange and not the name of the end-investors of the listed company.
Trying to lift the lid on beneficial ownership and fossil fuels, Dario Kenner’s Polluter Elite Database tried to manually identify the individuals and investors behind some of the largest oil companies. For Exxon Mobil, for instance, (and using publicly available data from 2015) he could only account for 12.08 per cent of the shares, most of which belonged to two large investment funds: BlackRock and Vanguard. In other words, we have no way of knowing who the individuals are who ultimately hold the remaining 88 percent shares, nor who is indirectly benefitting via BlackRock and Vanguard.
Beneficial ownership transparency has huge potential to help address the extreme inequality in global carbon emissions. It could strip away the existing layer of anonymity protecting those owning carbon intensive investments, and level the playing field for effective, fair policies to reduce greenhouse gas emissions.
A global asset registry for big polluters
The real purpose of beneficial ownership transparency of companies and other legal vehicles (as currently implemented in many countries) should be to ultimately know who the real owners of high value assets are, like real estate, yachts, private jets, collectible art, precious metals, etc. Countries could start by joining up their beneficial ownership registries for companies and trusts with national asset registries for particularly high value assets, that would ultimately converge in a global asset registry. This could serve as the foundation for various global ‘good taxes’, would also help with asset recovery in criminal cases with unexplained wealth orders, and improve the measurement of wealth inequality.
But there is also a crucial climate argument for a global asset registry. Dario’s work proves that most luxury assets like yachts and private jets are highly polluting.
Other studies show how, for example, soy and beef farming have been associated with deforestation in the Amazon – while more than two thirds of their foreign capital has been channelled through tax havens. Moreover, about 70 per cent of vessels implicated in illegal, unreported or unregulated fishing were registered in tax havens, using flags of convenience to disguise their activities and make them harder to track.
Lifting the lid of anonymity that conceals the real owners of these assets is a key step in making polluters pay, be it through climate damages taxes or other policy interventions aimed at reducing greenhouse gases.
A lot has to happen to implement a global asset registry. Both beneficial ownership and asset secrecy loopholes need to be fixed.
In line with the recommendations from our ‘Roadmap to effective beneficial ownership transparency’, climate justice and tax justice advocates should call on policymakers in every country to establish laws (or amend existing frameworks) to make sure that:
All legal vehicles (companies, trusts, foundations), especially those involved in greenhouse gas-intensive industries, are subject to beneficial ownership transparency, by registering their beneficial owners in central registries that are publicly accessible.
Investment funds and companies listed on the stock exchange should be subject to comprehensive beneficial ownership transparency, with as broad a definition as possible, covering any individual with at least one share, vote or rights to benefits or dividends – or any other means of control.
Beneficial ownership registries should be connected to asset ownership registries to determine the beneficial owners of high carbon assets such as large-scale commercial farmland, cars, yachts, private jets, etc.
Big polluters who amass obscene levels of wealth from harmful industries should be subject to wealth taxes, progressive taxes or other measures to reduce climate inequality.
Conclusion
Carbon-intensive companies and sectors dramatically worsen the climate crisis. However, there is very little information about individuals (the “beneficial owners”) ultimately owning, controlling or benefiting from these companies. The complex ways in which individuals can hold opaque interests in carbon-intensive industries is indistinguishable from those used by criminals to engage in money laundering and tax evasion.
The climate crisis and illicit financial flows related to money laundering, tax evasion or corruption are closely connected. There is one policy measure that could help tackle both: beneficial ownership transparency and, eventually, a global asset registry.
Achieving carbon justice is possible. We can start by uncovering those profiting most from the climate crisis, and introducing wealth and other progressive taxes.
Welcome to the latest episode of the Tax Justice Network’s monthly podcast, the Taxcast. You can subscribe either by emailing naomi [at] taxjustice.net or find us on your podcast app. All our podcasts are unique productions in five languages: English, Spanish, Arabic, French, Portuguese. They’re all available here. In this edition of the Taxcast:
In this episode Naomi Fowler looks at how the very wealthy shape the world, why the rest of us really, really can’t afford them. And, how it never ends just with the pet mansions and the cashmere-lined private jets, as the fascinating story of the EU Court of Justice ruling (reversing progress on public registers of beneficial owners of companies) demonstrates… There’s plenty we can do about it!
Also featuring: spoiled dogs, private jet business colleagues, a disillusioned youtube jet entrepreneur, a new jet owner and his excited friend, Kim Kardashian, Paris Hilton (plus her dogs and a reporter), a millionaire who’s ditching his jet, author of ‘How Bad Are Bananas?’ Professor Mike Berners Lee, Dun & Bradstreet youtube briefing
Produced and hosted by Naomi Fowler, Tax Justice Network
“The real centre of the offshore system is not the wealthy clients everyone talks about in the newspapers, it is the grey bureaucratic people called wealth managers, the attorneys, bankers, accountants, tax advisors etc who are the brains of the system. If you want to sanction wealthy people, what you actually need to do is knock their wealth managers out of the system, or disable their wealth manager’s ability to serve those oligarch clients.” ~ Brooke Harrington
Transcript of the show is available here (some is automated), and there’s lots of further reading and viewing below.
Naomi: “Hello and welcome to the Taxcast, the Tax Justice Network podcast. We’re all about fixing our economies so they work for all of us. I’m your host, Naomi Fowler. You can find us on most podcast apps. Our website is www.thetaxcast.com You can subscribe to the Taxcast there, or you can email me on [email protected] and I’ll put you on the subscriber’s list. Get in touch and tell me what you think of the show! OK, on the Taxcast…
[dog sounds and jet sounds]
…spoiled pets and private jets. We can’t afford the rich. But there’s plenty we can do about it. So, come fly with us…yeah, I know it’s cheesey!”
[Music: Sinatra, Come Fly With Me]
Naomi: “Whether you’re pretty wealthy, evenwealthier or super-stonkingly rich, if you choose it, there’s no long waits at airport check-ins for you, and no need to expose yourself to diseases by mixing with the public – seriously, monkey pox and covid are two of the reported reasons private aviation’s booming. And apparently it’s tough in the private jet business, as this entrepreneur explains. I hope you’re taking notes!”
Entrepreneur: “About a year ago in the beginning of 2022 I started a private jet charter broker company with a partner and here’s the reasons why you should not start this business: first off, the customer is very, very specific and very, very hard to market to. The person you’re going after that’s going to spend 20, 30, 40, 50,000 dollars on a private jet flight for a single charter is somebody that makes between 5 and 10 million dollars a year or more. Now how do you acquire these customers? If you havea very good organic network and you know a lot of high net worth individuals that charter jets specifically then this may be a business model for you, but for myself even knowing a lot of people that make a million dollars a year, two, three million dollars a year, even those people in my network often do not travel via private jet, it’s simply not worth the cost. If you’re making a hundred thousand dollars a month net or even gross, whatever it may be, twenty thousand dollars on a trip is quite a lot of money and it really just doesn’t make sense if you can fly first class or whatever, so the customer is very, very hard to go after. My business as a private jet charter broker is over, it’s a failure for me.”
Naomi: “Oh dear! So this guy didn’t own any private jets himself. What he was doing was connecting up wealthy people to private jet operators for a fee. And he was mainly using google ads to get his leads. In that youtube video, he says he was investing about $1714 to get enough clients who eventually paid up for private jet flights, and he made an average of $1837 per flight. You can see why he gave it up!
But a few steps up from that, there are of course big multi-million dollar companies that own, lease and operate entire fleets of private jets. The number of private jets globally has gone up 133% in the last 20 years. But there are some challenges to their business model too – listen to this conversation among colleagues in this sector. This is a video made by one of the world’s biggest private jet companies, Luxaviation:”
Interviewer: “Do you get many clients asking for sustainable fuel?”
Colleague 1: “Well, I think we need to work on that as an industry, I think we do a lot, we’re starting to look at sustainable aviation fuel to run some of the aeroplanes, er we’re starting to look at more efficient engines and I think we can, we can work, you know within our parameters, we’ve got to do as much as we can to convince people that we’re part of the overall transport plan. I think going forward, you know, one of our questions is the perception of business aviation, it’s going to be a challenge for us.”
Naomi: “Hm. And it’s not just public perceptions they’re worried about:”
Colleague 2: “I mean youonly have to look to the US and see you know there are several people who are tracking every aviation flight, you’ll see Bernard Arnault has just sold his aircraft based on the tracking and the sort of sustainability pressure, and some of the large pharmaceutical companies have decided to sell up their fleets as well. I think we’d be kidding ourselves to think that they are no longer flying privately, I think they’re probably going to less trackable methods.”
Naomi: “Yeah, one way to do that is transferring ownership of your jet to a trust so we don’t know who owns it, so tracking it’s of limited use. Bernard Arnault, by the way, is the second richest man in the world apparently. Actually he’s just been told he can’t dock his yacht in Naples because it’s too big – it’s got a glass bottomed swimming pool and outdoor cinema. He’s very disappointed apparently.
But back to flying – who is the typical private jet owner? Well, they’re overwhelmingly male, over 50, and they’re in banking, finance, and real estate. They represent 0.0008% of the global population. Their median net worth is $190 million. They don’t bother with chartering a private jet from a company, they buy their own. And unlike some wealthy people, this guy’s not ‘private’ about it:”
New jet owner: “It’s a huge day, I’m shaking, that’s how huge a day it is!”
New jet owner’s friend: “Tell everyone!”
New jet owner: “I am going to get to see my new jet today for the very first time! You’re going to see it with me for the very first time! It is ridiculously exciting and I don’t know what to do with myself so…!” [laughs]
Naomi: “A private plane will cost you millions – aviation experts say to justify buying your own jet you’d need to be burning through 350 to 400 hours of flight time a year.”
New jet owner: “And here we go! Ha ha haaa!”
New jet owner’s friend: “What?!! Get out of here!”
New jet owner: “How about this?!”
New jet owner’s friend: “Mate, that is gorgeous!”
New jet owner: “Is that wicked? Wait till you see inside it! I am so ridiculously excited!”
New jet owner’s friend: “Oh my god!”
New jet owner: “Alright, let’s do it!!”
[plane noise]
Air crew member: “Your Freighter 600!”
New jet owner: “Oh my god! I’m going in! Oh my god this is wicked! It’s exactly the way it’s supposed to be! The only one in the world!” [fade out]
Naomi: “And this guy’s purchase is relative small fry – here’s Kim Kardashian checking out her new jet:”
Kim Kardashian: “I wanted it to feel like an extension of me and an extension of my home. I had a bathroom put in the front, a bathroom in the back, every seat has its own phone charger. The best most exciting part of the plane is it’s all cashmere, the ceilings, pillows, headrests. I feel like I’m doing an MTV Cribs for planes, like oh what a dream!”
Naomi: “Ha! A cashmere-lined plane interior! Never a clearer example of why we need wealth taxes!! On the subject of taxes, Donald Trump’s 2017 Tax Cuts and Jobs Act (remember that?) allowed jet owners to write off the cost of a new plane used for business purposes in its first year. His most recent plane cost him a reported 100 million dollars and it’s got gold plating everywhere. There’s no doubt governments need to implement a wholerange of wealth taxes, urgently. And check this out…from jets, to pets…”
[Dogs barking, music]
Dog owner and dog mansion owner, Paris Hilton and reporter: “Hi guys! Hi guys! Hi everyone! Hello little angels!”
Reporter: “Paris designed the doggy mansion as a copy of her own home. So who’s who? Point out which dog is which!”
Paris Hilton: “Prada and Dolce, that’s her daughter, that’s Marilyn Monroe, and this is [inaudible]!”
Reporter: “Look at his jumper! Check this out! You are one trendy doggy aren’t you?! You’re so cool, you’re so cool and trendy! That’s ridiculous, you’re so adorable! And this house, I mean I’d happily live in there! Let me have a little look. It’s got stairs!”
Paris Hilton: “Yeah, some furniture and a chandelier!”
Reporter: “You’ve got a mezzanine level and a sofa, haven’t you?!”
Paris Hilton: “A closet…”
Reporter: “They’ve got a closet! And it’s actually got clothes in!”
Paris Hilton: “I just designed it sort of like my house with like mouldings and put the chandelier and the heater and air conditioning…”
Reporter: “We’ve got air conditioning, this is just genius!”
Paris Hilton: “I love animals! They’re very spoiled!”
Reporter: “And rightly so, they’re little princesses!”
Naomi: “Yeah, really! Spoiled pets like these seem to have as many ‘needs’ as their private jet owners have – back to that Luxaviation video:”
Colleague: “Some of the maybe special things you might want – are you traveling with pets, are you going to be having your dogs, do you want them loose in the cabin. We have a regular flyer who’s a budgie that comes in his cage and he occasionally brings his love bird mate with him, so there’s a lot of little sort of small questions that might be the kind of icing on the cake to ensure that you get the aircraft that makes it the most kind of pleasurable and easy experience for you.”
Naomi: “Budgies and their love mates! Of course! Anyway, Luxaviation’s CEO really caught the world’s attention at the recent Financial Times’s Business of Luxury conference in Monte Carlo, Monaco. The Guest of Honour was His Serene Highness Prince Albert II of Monaco. Luxaviation was a ‘gold sponsor’ for the conference, so – maximum PR potential to pitch this private jet company. And that’s just what the CEO of Luxaviation did. He used an unusual and eye catching angle…”
Patrick Hansen: “Now what you do not know but I think is important to put in perspective – a cat is responsible for possibly 700 kilos of CO2 every year – so three cats is one passenger.”
[Record scratch sound effect]
Naomi: “Pardon, what?! Someone from the company clarified afterwards that he meant to say dogs, not cats. What he’s saying is that having three dogs is as bad for putting out carbon dioxide as a year’s private jet flying for one person. (It’s not). The private jet industry does have an image problem, it’s got a moral problem, and it knows it. And it’s not just the general public. Here’s a millionaire telling the BBC why he’s getting rid of his jet:”
Millionaire: “The ten times the amount of carbon input into the environment versus commercial travel, that did it, it threw me over the edge, it’s like I’m taking up 10 seats in a 737 when I’m flying, instead of the one that I do. It just struck me – how incredibly selfish!”
Naomi: “Well, yeah! According to estimates, just 1% of people are responsible for about half of all aviation carbon emissions. Going back to that bizarre dog statistic from the CEO of Luxaviation – he got that from a book on carbon footprints by Professor Mike Berners Lee. And here’s the Professor himself talking to the BBC:”
Professor Mike Berners Lee: “I was pretty disappointed to see my book being as a justification for luxury private jets which is what Luxaviation were using it for. In my book I do talk about the carbon footprint of an average dog being 700 kilograms per year – rough estimate, and Luxaviation estimated that I think it’s a single short flight on one of their smaller jets would be 2.1 tonnes, so that does work out at three dogs per single one-way flight. Those numbers from Luxaviation look suspiciously low to me, they don’t tally with sums I’ve done elsewhere.If you took five return short-haul flights on a private jet in a year, that would be like having 60 dogs!”
Naomi: “It starts to get mind boggling when you try calculating dog per long haul flight. Apparently it does depend on what you feed the dogs, the size of them and all sorts of other stuff – but that’s not for this podcast! Anyway, the professor is very clear:”
Professor Mike Berners Lee: “Cutting out private jets, we absolutely should reduce them by a long way, they’re something like ten times more carbon intensive than normal commercial flying. All of us need to ask any time we think about taking an aeroplane we have to understand that’s a high carbon thing to do and we have to ask ourselves – can we justify it? And if you’re taking a private jet we have to ask ourselves ten times as hard.”
Naomi: “Yeah, I know – it’s really the system and governance we need to focus on and tax has a huge role to play in that. By the way, the professor’s not impressed by all the world summits we’ve had, the so-called ‘COPS’ to tackle carbon emissions and climate crisis:”
Professor Mike Berners Lee: “I think we have to recognise that we’ve now had 27 – that’s 27 COPS – to try to cut the word’s carbon footprint and if you look at the global carbon curve, it’s still going up – at the global level – it’s still going up exactly as if humans had never noticed that climate change might be an issue, so we have to recognise the COPs are absolutely not doing it for us!”
Naomi: “Hm. Taxes really are a superpower for tackling the climate and inequality crisis. At the Tax Justice Network, we’ll be covering that in more detail soon – I’m putting some further reading on that in the show notes, so look out for that. But, back to the world of the super-wealthy and Luxaviation, the private jet company. That company’s CEO is interesting because he recently played a key role in protecting the secrecy of the wealthy and powerful. If we rewind a good few years, there was a breakthrough in Europe when it came to identifying the real flesh and blood owners of companies. After all the leaks and scandals – like the Panama Papers – exposing the dangers of financial secrecy, the fourth European Anti-Money Laundering Directive came along – implementing beneficial ownership registers, or UBO registers in the EU. Yes, the very same registers the Tax Justice Network was laughed at for proposing – we were told they’d never happen:”
Dun & Bradstreet: “However, many states made this only accessible to law enforcement authorities which made it not very effective. The fifth directive then went further and stipulated that they must be publicly accessible, although even with this many countries dragged their feet in terms of creating them and they weren’t necessarily easy to access or even free.”
Naomi: “This is business advisory firm Dun & Bradstreet:”
Dun & Bradstreet: “Luxembourg was one of the first to introduce one and it did make it completely free to access. However a couple of individuals then challenged the Luxembourg business registers, saying that their ownership interests would open them up to disproportionate risks and also infringe their rights to private life.”
Naomi: “One of these individuals was the CEO of Luxaviation. The case ended up in the European Court of Justice, which ruled in his favour. That ruling rolled back one of the most powerful measures against financial secrecy of the past decade, taking away the requirement for EU nations to have a public beneficial ownership register. It meant European governments who wanted to, could return to the dark ages of dirty money. At the time of recording, only a third of member states kept their registers public after the ruling. You won’t be surprised to learn that the ones that ended public access tend to be countries that were already offering higher levels of financial secrecy. All this just as governments were showing off about seizing the assets of Russian oligarchs. Well, good luck with that! Back to Dun and Bradstreet:”
Dun & Bradstreet: “So onto the ruling itself. Essentially it boils down to weighing up the objectives: ie combating financial crime and preventing money laundering versus the interference with article 7 and 8 of the EU Charter in respect to the rights to personal and family life and the protection of personal data. Some of the concerns that came out of the ruling suggest that it is not suitably clear that public access actually advances the objective. The court however did point out that articles 7 and 8 are not absolute rights, so they do not simply override everything, but they must be shown that the level of interference is proportionate to the objective.”
Naomi: “Yep, all rights are subject to reasonable restrictions that also serve society. And financial secrecy doesn’t just offer criminal opportunities to people potentially, it undermines an accountable economic system. Florencia Lorenzo of the Tax Justice Network:”
Florencia: “Legal vehicles in general, and especially those that grant limited liability, are a specific type of a social pact between individual societies and the state where those individuals that create the legal vehicles and the corporate vehicles, they benefit from some privilege that must be followed by some duties and accountabilities, right? So if societies agree to that fact, it is only fair that they know who are they actually protecting and guaranteeing the rights, because those rights are not a fruit of nature, it’s not something that is kind of given, like this is a pact which comes with some accountability. And then there is this issue that if you are an investor or a potential commercial partner, you might not be investing and you’re gonna trade with someone and you want to know who is the person behind the company, because I mean, how can you trust it? So from the point of view of the investors or the commercial partners, this is obviously a big issue. Transparency is fundamental.”
Naomi: “It is. Here’s Mark Bou Mansour of the Tax Justice Network:”
Mark: “It’s worth highlighting here that the European Court of Justice has based its decisions on principles of privacy and human rights, which are meant to be universally applicable. But the ruling only really applies to a very narrow group of people. For most companies, at least in most parts of Europe, when they incorporate, they need to publicly register their legal owners. And for most companies, their legal owners are their beneficial owners. If I legally own a company on paper, I’m a shareholder, you know, I make the big decisions for the company. I benefit financially from the company, I’m its legal owner and its beneficial owner. But if you’ve got the means and maybe the incentive to hire a team of accountants and lawyers and financial service providers, structures can be put in place to separate you from the company as a legal owner, but keep you in place as a beneficial owner. So you know, you can put in place legal nominees, shell companies and tax havens that hide any paper trail of your legal ownership of the company, but you still get to call the big shots of the company, you still get to financially reap the rewards from the company, but hiding your legal ownership of it. And that is a form of financial secrecy and that’s what this ruling has done really, it’s upheld the supposed privacy not of all business owners, but of a very narrow group of business owners who want to remain in secrecy, who want to remain hidden while they continue to benefit and control companies.”
Naomi: “It is indeed a small group of people – the vast majority of us just don’t have the money to purchase financial secrecy, this kind of ‘escape’ to a sort of nowhere-land where we can potentially buy our way out of accountability, taxes and laws that apply to everyone else.
Back when nations first made ownership registers public, journalists were able to build on the good work from leaks like the Panama Papers and expose even more corruption, conflicts of interest, tax cheating and money laundering. All very much in the public interest. So, what was the Luxaviation boss worried about? Florencia Lorenzo again:”
Florencia: “There is no evidence whatsoever that making beneficial ownership information public leads to an increase in crimes against the wealthy. This sort of information, so the name, the nationality, the country where the person lives, I mean, you didn’t have even the address of that person in the register, you know, it’s not like you would go to a BO register to find this information. And I think that the most ridiculous part of that is the premise that anyone might need beneficial ownership information to know who the wealthy are in societies, when everyone already knows that by the neighbourhoods they live in, the cars they drive, etc.”
Naomi: “Yes, the Michelin star restaurants and five star hotel suites are a much better bet if you’re into kidnapping, blackmail or extortion! But, as you’ve heard from the Luxaviation CEO’s rather eye-catching dogs per flight comparisons, he’s no shrinking violet. And his desire for privacy seems to be selective. This is Mark Bou Mansour of the Tax Justice Network:”
Mark: “You’ve got the highest court in the European Union shutting down transparency measures that took years to put in place. These measures are a response to the Panama Papers, they’re there to protect against tax evasion, corruption, money laundering, sanctions-busting, you name it. And they’re shutting these measures down because they’re accepting and upholding the argument of a plaintiff who’s saying these measures expose me to kidnapping when I’m traveling abroad by revealing my wealth. But throughout the whole course of this case, the plaintiff is on Facebook, on Instagram, publicly posting about their travels abroad, demonstrating their wealth, posting about their luxurious private jet business, they’re using Facebook geo-tagging services. They’re, they’re tagging, you know, publicly accessible, identifiable places, identifiable places they’re visiting. It’s unbelievable!”
Naomi: “That sounds all too familiar to Brooke Harrington, who’s done groundbreaking private wealth management research:”
Brooke Harrington: “When you’re wealthy enough to afford a wealth manager and to use offshore finance, often what you really want is simply to protect what you have from the various forces that might diminish your assets, which include taxation, debts. So the same people who don’t like to pay their taxes also don’t like to pay their debts and there are hired bounty hunters who chase these people around. Wealthy folks who don’t like paying their debts also have a bad habit of bragging about their locations on Instagram. A few years ago the Wall Street Journal ran a really interesting article on a friend of mine who is a very high powered lawyer who was based in London at the time and basically all he did was follow the Instagram accounts of oligarchs, and as soon as they came to the UK or particularly to London, they would post some photo of themselves at Claridges or something and he’d be like ‘right!’ to his team and he’d send them to Claridges to the smoking room to serve these individuals with the legal papers necessary to start the lawsuits to reclaim whatever it was they owed to my friend’s clients, so taxes and debts threaten a person’s fortune.”
Naomi: “When you take a closer look at the Luxaviation CEO, Patrick Hansen, there certainly are things he might indeed prefer to keep secret, as Luxembourg journalist Luc Caregari of reporter.lu and colleagues reported:”
Luc: “Why he went to such trouble to protect his privacy? That’s very simple. I mean, he is known for two big companies. One is Luxaviation, that’s a private jet company, and the other one is Saphir Capital Partners, which is a private equity firm, and we have discovered that Luxaviation has received massive loans from a Russian businessman called Alexander Kolikov, who is close to close to Putin and who has a firm in Russia that worked on pipelines, even on the North Stream Two pipeline. And in the same moment, the private equity firm Saphir Capital Partners holds tons of money from the same Kolikov, I mean generally, they are working on his investments.”
Naomi: “There’s a lot of other connections they dug up, but those kind of connections have become more controversial since the invasion of Ukraine. But some of those oligarchic connections have long raised eyebrows because of the ways many of Russia’s wealthy got wealthy. And that’s not all. Patrick Hansen’s been owner or director of more than 117 companies registered around the world, including in well-known secrecy havens like Belize and the British Virgin Islands. There may well be more. Many of the companies he’s directed had Russian beneficial owners. Not illegal, but according to experts, unnecessary complexity in corporate structures, and so many directorships often raise red flags for further investigation. The Luxaviation CEO Patrick Hansen says he’s just a hard worker. He also says he’s been fully transparent about the financing of Luxaviation; none of his Russian business partners have been sanctioned; and, any loans he’s had went through banks that did compliance checks. With this privacy case that began in Luxembourg and ended up in the European Court of Justice, we didn’t even know, initially, who was behind it. Journalist Luc Caregari again:”
Luc: “How did we discover Patrick Hansen’s identity? Well, that’s a simple one. We went to court, simply because he was there! A colleague of mine knew that there was a case against the UBO registry and she went there and recognised him because he’s a very public figure and he’s very well known, he likes to give interviews and boast about his businesses, but he doesn’t like to be investigated, it seems.”
Naomi: “After the European Court of Justice ruling, not all, but some European countries were super-fast to shut their registries to public eyes. Patrick Hansen says that was not his aim, and he was only ever trying to protect his own privacy. But, leaving aside these individuals who brought the case, achieving this European Court of Justice ruling is a real feather in the cap of the lawyers who represented them. And, Brooke Harrington says this is exactly the point that governments are missing with all their big words about tackling oligarchs, financial crime and corruption:”
Brooke Harrington: “The real centre of the offshore system was not the wealthy clients everyone talks about in the newspapers, it was the grey bureaucratic people called wealth managers, the attorneys, bankers, accountants, tax advisors etc who are the brains of the system. Because billionaires are not sitting on their yachts trying to master the tax code of the Cayman Islands or the BVI, or what have you. They don’t have time for that, it’s too complex, and it’s ever changing. So they outsource it to professionals and those professionals are known as wealth managers and they’re like the brain trust of the whole system, they construct the offshore system for individual clients and they manage it in a dynamic way. The centre is the wealth managers. One implication of that is if you want to sanction wealthy people, what you actually need to do is knock their wealth managers out of the system, or disable their wealth manager’s ability to serve those oligarch clients.”
Naomi: “These are the enablers, and they escape the attention they deserve. Brooke has recently released another groundbreaking report working with mathematicians and experts in network and complex systems analysis. The International Consortium of Investigative Journalists’ Offshore Leaks Database offered possibilities to study offshore that didn’t exist before, thanks to five massive leaks: the Pandora Papers, Paradise Papers, Bahamas Leaks, Panama Papers and Offshore Leaks. Here she is, explaining the study at a recent Tax Justice Norway event:”
Brooke: “Our objectives were to map the structure of this semi-invisible system. You know, aristocrats and criminals have a lot in common – they use the same structures to hide their dirty work, and both of them depend for their power on dirty work. So what we found was not just a network of offshore finance, we found a very unusual kind of network, it’s called a ‘scale-free’ network. Very few networks are made like this – the world wide web, gene editing networks, airline networks. You know, they’re organised around a hub? So if you’ve ever like flown through bad weather – like, my home town of Chicago notoriously gets terrible winter storms. If Chicago O’Hare airport shuts down, pretty much the entire US airline network shuts down. So that’s the kind of network we’re talking about. It’s very robust, except if you attack those hubs. Now imagine that transposed to the offshore system. If you’ve ever wondered why sanctions and blacklisting haven’t worked so well, the implication here is that those efforts haven’t attacked the hubs, they’ve attacked the spokes. So if you shut down the airport in Wichita, Kansas you wouldn’t even notice if you’re flying anywhere else in the US. But you shut down one of the hubs – Newark airport, Atlanta, Chicago, you’re stuck. You’re stuck even if you’re in Los Angeles, you’re not going anywhere. That’s the kind of structure we’re talking about. You can break the whole network simply by intelligently targeted attack.
Because in this data set, clients come from everywhere. These are the countries that produce the highest proportion of billionaires in the world: Russia, China, the US and Hong Kong. This starts to show us the shape of these secrecy networks. One of the things that is very pronounced – oligarchs operate a lot like mafiosi – that means that they want to keep the number of people who know their business, know what their wealth is and where it is, to an absolute minimum, so that means they work with a very, very, very limited number of wealth managers. That creates a hub and spoke kind of system, it creates a vulnerability. Compartmentalising, concealing information is the name of the game here. We call these places tax havens, offshore but what they really are is secrecy havens and secrecy of course is about information control. One of the ways you control information is tightly limit the number of people who know the big picture.
What happens when you disrupt the networks of Russian, Chinese, Hong Kong and US oligarchs, the people who use the offshore financial system? We used a methodology common in network analysis called The Knockout Experiment. What happens there is you look at someone’s network and you just say ‘let’s take out one person in the network,’ sort of like – are you familiar with the game called Jenga? You know, like a little pile of sticks and then you take one or two out at a time? Well this is like a very special game of Jenga where you target which stick you take out, and just like you’d expect in the web, or with airline networks, or gene editing networks, not all sticks in that system are created equal. If you take out the stick labelled ‘wealth manager,’ especially in the Jenga piles for Russian and Chinese oligarchs, the whole tower comes down. That is a very important piece of information if you’re a policy maker, because it means – don’t waste your time sanctioning the wealthy people.
Turns out also, not only do Chinese and Russian oligarchs concentrate their secrets among one or two wealth managers, they concentrate geographically for a variety of reasons, so if you just pull out the 26 sanctioned oligarchs who appear in the ICIJ database, you get some very interesting pictures. Most of those 26 sanctioned Russian oligarchs have already been sanctioned multiple times but were able to evade the effect of sanctions, they moved themselves around or they moved their assets around. And of course when I say ‘they’ I mean their wealth managers, so one of the problems for public policy is it’s really hard to sanction the ultra-wealthy. Just like it’s hard to shut down or sanction offshore financial centres that abuse the law. Well, one of the reasons for that that we’ve discovered is that the sanctions are targeting the wrong thing, they’re targeting the oligarchs. You can take out oligarchs’ access to one or two offshore piles of money, but if you really want to shut them down, what our work shows is you’ve got to get their wealth managers and those wealth managers are named in the Panama Papers and the Paradise Papers and the Pandora Papers, so we know who they are.
So if what you really want to do is cut off bad guys from their offshore wealth, what we’re showing quantitatively is the way to do it is make it so the wealth managers can’t serve them. There’s a very long history of doing this in the law and starting at the end of the second world war there were rules about which experts could share information about nuclear biological and chemical weapons with whom, so that’s the model that we’re suggesting can be applied to wealth managers. The message from governments – and this is already being done in the US, the UK and the EU – the message to wealth managers is ‘go ahead, practice your profession, you’re not constrained, except that you can’t work with these sanctioned individuals!’ That sounds pretty reasonable right? But that would have a massive impact and that’s what we’ve demonstrated in this work. Sanctions against elites may be ineffective, but sanctioning their wealth managers is likely to be extremely effective. If there’s a political will to do it.”
Naomi: “Yes. Brooke Harrington there. What she’s saying about wealth managers could potentially be applied to other enablers, like lawyers. In fact, there’s a surprisingly small elite group of legal firms that serve oligarchs and the super wealthy. Big lawyer company Mishcon de Reya represented the Luxaviation CEO, managing to end public access to registers of beneficial owners. While Mishcon de Reya may also take on many worthy and good cases, until recently they ran a specifically named ‘VIP Russia Service’ specialising in “reputation protection,” wealth structuring and asset protection for high net worth Russians. They’ve removed that page from their website and they’ve said they don’t serve any sanctioned Russians. Mishcon de Reya was also hired, by the way, to defend the reputation of a wealthy client doing business in Malta against investigations by the Maltese journalist Daphne Caruana Galizia, who was sadly assassinated. According to her sons, that legal action ‘sought to cripple her financially with libel action in UK courts.’
Even if journalists weren’t once again so constrained in many jurisdictions in accessing information on beneficial ownership registers, leaks like the Panama Papers will continue to be inevitable. Because the system for the extremely wealthy and powerful is still so secretive. And there are people working within that system that understand the damage, no doubt about it.
Political will really is key. Governments could stop a lot of crime and corruption in its tracks very quickly if they really wanted to. The question is how close they are to those who benefit from financial secrecy, and how much they themselves use it. Governments are failing on financial transparency and they don’t properly fund enforcement that we know would make corruption much more difficult. Last word goes to the Tax Justice Network’s Florencia Lorenzo:”
Florencia: “It’s a very hypocrital thing that the wealthy do not care about identifying when this is like a social distinction, when you want to make sure people know that you have more power, but when you should be kept accountable, you do not allow authorities to make any information public, so I think that this is ridiculous. And I think that maybe that’s one of the most outrageous elements of the ruling, for those that are concerned with social justice, is that it tries to embed the decision within the context of human rights language. Because I mean, how can you actually guarantee human rights are being respected within the context of opacity?! This ruling is undermining transparency and accountability, which is a core element of any framework that seeks to guarantee human rights. Civil society organisations and journalists make hugely important work in terms of keeping companies and other legal vehicles accountable. Some local groups might also be interested in keeping track of some entities, and they won’t be able to do that or they will have to make like a huge effort to access this information. So if for instance now if you’re talking about environmental crimes that some community might be dealing with, a lot of those crimes are actually protected by corporate opacity. So if local communities want to access who is the person that is actually committing those crimes, they’re going to have to fight a very upwards battle. It’s not going to be simple.”
Bitcoin, stablecoin, criptomoedas: por que são armadilhas? É possível regular, evitar crimes e tributar para que elas caibam em uma economia que funciona para todas as pessoas? Estas perguntas estão respondidas no episódio #50 do É da sua conta.
Uso (e fraudes) com criptomoedas aumentou na América Latina, aponta estudo do Global Financial Integrity (GFI)
O que representam as criptomoedas dentro do cenário econômico, político e social no mundo? Quem responde é Edemilson Paraná ( LUT University – Finlândia)
É possível e necessário tributar criptomoedas, explica Florencia Lorenzo (Tax Justice Network)
O consumo intensivo de energia elétrica pelo mercado cripto e a importância da reprecificação
A legislação brasileira de ativos virtuais a um passo de ser implementada, comentada pelo especialista Rafael Paiva
O que é stablecoin e os riscos deste tipo de moeda virtual para a questão monetária internacional
Bitcoin e o desempenho desastroso como moeda oficial em El Salvador, pela economista Tatiana Marroquin
Ouvintes do É da Sua Conta opinam sobre investir em criptomoedas
Edemilson Paraná, professor de ciências sociais da LUT University (Finlância) e vinculado ao programa de pós-graduação em sociologia da Universidade Federal do Ceará (Brasil). Autor do livro Bitcoin: a utopia tecnocrática do dinheiro apolítco.
Ouvintes: Aurora de Armas (Curitiba-PR), Laiane (Teresina-PI), Maria (Currais-PI), Railda Herrero (São Paulo – SP), Rosângela (Arapiraca – AL) e Wellington (São Bernardo do Campo – SP). Por questões de privacidade, ouvintes preferiram se identificar com o primeiro nome ou usar pseudônimo.
~ As armadilhas das criptomoedas #50
“O Bitcoin é uma forma de dinheiro altamente antissocial, no sentido pleno dessa definição; que não aceita ser atravessado por nenhuma dinâmica redistributiva, tributária, regulatória e assim por diante.” ~ Edemilson Paraná, LUT University
“Para minerar criptomoedas, o uso de energia dé maior do que o consumido em alguns países inteiro. Em um contexto de crise climática e energética, tributar criptomoedas pode ser adotado pelos países como forma de reprecificar. ” ~ Florência Lorenzo, Tax Justice Network
O Brasil tem, desde dezembro de 2022, uma lei de ativos virtuais. Em junho de 2023 foi editado o decreto que determina o Banco Central como órgão regulador. “Mas isso está longe de resolver a questão da regulação. O próximo passo é a edição do regimento interno pelo próprio BC”. ~ Rafael Paiva, professor de economia e especialista em ativos virtuais.
“A lei do Bitcoin teve um impacto na política fiscal e permitiu que a comunidade internacional visse a gestão arbitrária de fundos públicos e estatais por parte do governo (em El Salvador).” ~ Tatiana Marroquin, economista salvadorenha.
“Para as pessoas que têm dinheiro, sugiro investir em cooperativas, projetos de produção – industrial ou agropecuária – , de preferência projetos coletivos e com perspectiva sustentável.” ~ Aurora de Armas, ouvinte É da Sua Conta
When finance gets too big, it can undermine the rest of the economy, and foster corruption in government. That causes significant social harms for a country like the UK. For smaller jurisdictions, where the dominance of finance can be even more intense, the damage of the finance curse can be dramatic. Layered on top of that, smaller jurisdictions are discriminated against in everything from media coverage and political comment on ‘tax havens’, to the listing processes of global North organisations like the OECD and European Union.
The following blog is by Zheng Cao, Chris Jones and Yama Temouri, the authors of a new study that explores the impact of the Panama Papers – a scandal whose very naming focused the reputational damage on one jurisdiction, far in excess of Panama’s real contribution. The authors also show that across jurisdictions, and where no scandal occurs, an over-dominant financial sector is associated with substantial economic harm. How can jurisdictions extricate themselves from the finance curse?
It’s been over 7 years since the release of the Panama Papers by the International Consortium of Investigative Journalists: the ‘giant leak of more than 11.5 million financial and legal records [exposing] a system that enabled crime, corruption, and other questionable activity, hidden by secretive offshore companies’. It led to the downfall of Prime Ministers in Iceland and Pakistan as well as exposing the sprawling links and complex connections of wealth held by close Associates of Vladimir Putin. The now infamous Panamanian law firm, Mossack Fonseca, has closed, but the co-founders of the firm are still embroiled in legal issues to this day.
But what impact has the leak had on the economy of Panama? At the time of the scandal, Panama’s President, Juan Carlos Varela, pronounced that the leak addressed tax evasion in general but not Panama per se – hence, deflecting the effects of the scandal on Panama’s image. In a recent study, published in the highly-ranked Journal of Travel Research, we analyse whether the media scandal has had a negative impact on Panama’s economy in terms of its tourism exports, a key sector of the country. Furthermore, we deploy statistical analysis that investigates the long run impact of financial sector growth on the tourism industry.
We relate the impact of the Panama leak to what economists refer to as the natural resource curse, which is well-known in development economics. As a form of Dutch Disease, countries dominated by particular sectors, for instance oil, may crowd out and cause a decline in other areas of the economy, such as manufacturing. Christensen, Shaxson and Wigan apply this concept to the role of the financial sector in the UK and coin the term ‘finance curse’ to describe the situation where an oversized financial system becomes a drag on productivity growth, by driving up prices and nominal exchange rates, harming the competitiveness of the tradeable non-financial sector and taking skilled workers away from high-tech jobs. They also highlight a further effect, that this overdependence leads to the finance sector increasingly dictating policy changes (rather than voters). Over time, this is seen to undermine government accountability and the social contract.
We essentially apply the Dutch disease argument to the impact of offshore finance on tourism. Thus, the financial sector, in particular in tax havens, crowds out the tourism sector. As is well known, tax havens such as the Cayman Islands and the British Virgin Islands are often associated with tourism as well as a dominant offshore financial sector.
What if there had been no such thing as the Panama Papers? Using a statistical technique called the Synthetic control method, we found that since the scandal in 2016, Panama’s tourism exports have fallen relative to an estimated counterfactual level that would otherwise have been attained. The (synthetic) control unit is made up of a pool of countries that resemble Panama in terms of geography, economic development and dependence on tourism and offshore financial services.
Although tourism exports rose from US$0.85 billion (in real terms; seasonally adjusted) in 2016(Q2) to US$0.94 in 2018(Q1) they would have been considerably higher had the scandal not occurred. This is estimated at 0.8 per cent lower than the control unit for 2016; 7.4 per cent lower for 2017; 5.9 per cent lower for 2018; and 10.7 per cent lower for 2019 (see Figure 1).In summary, we can say that this media scandal appears to have had a significant economic impact, given that tourism contributes around 14.5 per cent to Panama’s GDP.
Figure 1. Growth path of tourism: Panama vs a counterfactual with no ‘Panama Papers’
Note: The solid line shows the actual values of Panama’s real tourism exports, whereas the dashed line represents the counterfactual values of the same in the absence of the scandal.
Our other results uncover more broadly the impact of financial sector development on tourism exports for a sample of small open economies (ie Dutch disease in this context). Our measure for financial development is the value of real financial services exports and we include this in a panel data model with tourism exports as the dependent variable. One of the problems associated with this type of empirical specification is that the underlying process that generates tourism exports may also generate financial services exports. Hence, we estimate a number of models to account for this statistical problem.
We find that a 1 per cent rise in real financial services exports leads to a 0.172 per cent fall in real tourism exports, consistent with the Dutch disease argument.
Our results have a number of important implications. Firstly, it would appear that a major leak and media scandal, such as this, has real economic consequences as well as political consequences. This means that future media investigations that implicate other small open economies may be detrimental in terms of affecting a country’s reputation.
Secondly, our study shows that a tax haven development strategy may be counterproductive. It may crowd out other sectors of a country’s economy. It is well known that the returns of financial sector development typically accrue to the wealthiest members of society and lead to widening inequality. In encouraging greater financial sector development at the expense of higher employment in sectors such as tourism, policy-makers should not be surprised to find that they have created deeper inequality.
If you had told me when I was younger that I would be thinking about taxes, voluntarily, day in and out, I would have laughed. But then, through a combination of research, exposure, being challenged, and righteous anger, I started taking to issues of economic justice, of inequality.
What I used to not have words for – the fact that in Brazil, I saw more helicopters than in New York, and yet many communities had no access to sanitation facilities, that these two extremes shouldn’t co-exist – became part of a new understanding. With this understanding of inequality, came another slow and painful realisation: that the wealthiest countries and households are far, far more responsible for overconsumption and planetary damage – something that is more widely understood today. Because the resulting harms are felt most sharply by lower income countries and households, the crises of climate and inequality are mutually exacerbating. In fact, I don’t think of them as two separate issues anymore – they are two sides of the same problem.
This led me to asking questions about what we can do about it, to reduce emissions, to reduce inequality – and is what ultimately landed me in this job.
Today, we are happy to announce the Tax Justice Network’s new stream of work focused on carbon tax justice – a vital aspect of our mission to reprogramme tax systems into tools for equality. Our work on carbon tax justice will seek to mainstream our approach to pricing and non-pricing instruments aiming to cut carbon emissions, and relies on what we call the triple reduction nexus:
emissions need to be reduced quickly;
in large quantities;
while simultaneously trying to reduce high and rising inequality.
This nexus reflects the need for radical, progressive climate policies built on equality, treating the needs of all members of society in the middle of major transition as equally important, while recognising the legacies of historic climate injustice.
To mark the occasion, we are releasing a comprehensive position paper titled Delivering climate justice using the principles of tax justice: A guide for climate justice advocates. The document aims to demystify and lay bare what tax can (and can’t!) do for climate justice.
It is cognisant of the fact that those among us who consider themselves part of the climate justice movement seldom get the chance to speak with confidence about reforming the financial system, the fiscal structures and tax frameworks that so critically constrain effective climate action, when they could be playing a vital part. Opening ourselves up to the immense role these systems and frameworks play can seem daunting, as the ministries and organisations that negotiate them, their language and analyses tend to shroud themselves behind a veneer of seemingly neutral, highly technical expertise.
The position paper is therefore meant for anyone interested in the principles, arguments and areas where the worlds of tax and climate justice overlap – be they activists, policy specialists, researchers and journalists – and overlap they do, a lot.
This brief will also serve as a guidepost for our future activities, outlining our understanding of specific areas deserving of targeted efforts, against the backdrop of our continued advocacy around a UN tax convention.↪NOTEFor the past century, global tax rules have been set by a small club of rich countries, some of which rank as the world’s most harmful tax havens. The outcome is tax rules that fail to stop, and sometimes even encourage, tax injustice.
Establishing a UN tax convention will give all countries a say on global tax rules through a democratic, inclusive intergovernmental body under the UN, and will introduce global tax rules that must adhere to the UN’s human rights principles. Learn more here. It serves as the foundation upon which we will develop advocacy, policy and research activities, in collaboration with our networks, allies and partners.
Carbon tax justice capitalises on the immense skills and knowledge built in the movement over the past 20 years, cutting-edge thinking and weaving together of solutions to interconnected issues. Over the next few weeks, expect to dive into topics that link the climate and tax justice movements in tangible ways, including through mechanisms of financial transparency. We’ll dive deeper into why beneficial ownership transparency↪NOTEA beneficial owner is the real person, made of flesh and blood, who ultimately owns, controls or benefits from a company or legal vehicle. Transparency on beneficial owners cuts through the secrecy tactics used to hide the identities of beneficial owners, and makes sure the wealthiest are held to the same level of transparency and accountability as everybody else. Learn more here. is closely linked to some of the most carbon-intensive industries, and take a new look at why carbon credit schemes are set up to fail countries in the Global South.
Together, we can challenge the status quo, dismantle systemic inequalities, and forge a more sustainable future for all. Please come along for the ride and let us know how you would like to collaborate.
Corporate taxation in Switzerland has about as many holes in it as its famous cheese does. That is possibly about to change (although whether for the better or the worse is up for debate.)
Introduction of a minimum global tax rate in the EU
On 12 December 2022, the EU adopted the proposal for a Council Directive to introduce a minimum tax rate of 15 per cent for multinational enterprise groups and large-scale domestic groups in the EU. The proposal relates only to groups with combined financial revenues of more than €750 million a year. In practice, if the effective tax rate for the group is below the 15 per cent minimum, it will have to pay a top-up tax to bring its rate up to 15 per cent.
EU member states need to implement the new rules by 31 December 2023.
Why a minimum corporate tax rate is important
Low corporate tax rates have become a blunt tool used to get large corporates to establish themselves in a particular jurisdiction. But in doing so, it becomes a race to the bottom, with countries punting ever lower tax rates.
Tax competition is a false economy.
The Tax Justice Network has long argued that these strategies that are pursued in the name of a euphemism like “competitiveness” or “open for business”, are little more than a woolly-headed concept. These “competitive” incentives are always directly harmful to the wider public interest. Even in the cases where tax cuts do attract investment, it attracts exactly the wrong kind of investment: the flighty kind with few productive linkages with the rest of the economy.
A global minimum tax rate, if done right, can help prevent multinational corporations and wealthy individuals from exploiting tax loopholes and artificially shifting profits to low-tax jurisdictions. It also helps in reducing the incentive for companies to engage in harmful tax competition, where they relocate or shift profits solely for tax purposes. In the process, it prevents the kind of profit shifting and tax abuse which is eating away at the public funding countries need for public services, infrastructure development, and social welfare programs.
Sadly, negotiations at the OECD have beaten the global minimum tax rate down from a timid 21 per cent rate – initially proposed by the Biden administration – to an ineffectual 15 per cent. Calls from lower income countries and the UN for substantially higher minimum rates – closer to widely held statutory rates – have been completely ignored in the process. With the rate set far below most countries headline corporate tax rates, the deal will unashamedly benefit rich tax havens that are members of the OECD like Ireland, Luxembourg and Switzerland.
What started as a speed limited for tax havens is now a rewards programme for tax havens – and in Switzerland’s proposed local implementation of the deal, a rewards programme specifically for tax abusers based in Switzerland.
Current corporate tax rates in Europe
The importance of establishing a global minimum tax rate is evident when one considers the current corporate tax rates across eg Europe in general, and a country like Switzerland in particular.
The average corporate tax rate in Switzerland is 13.5 per cent. Of its 26 cantons, 21 have tax rates well below the minimum 15 per cent threshold set in the new EU rules. In some of its cantons, the tax rate is as low as 11 per cent (Basel-Stadt, Zug and Nidwalden).
The situation is even worse when you consider the fact that corporate tax havens like Switzerland often allow multinational corporations to pay corporate tax rates that are far below the headline corporate tax rate. For example, our 2021 Corporate Tax Haven Index found that some companies exempted from Switzerland’s tax reform could potentially be allowed to pay a corporate tax rate as low as 2.61 per cent.
Of course, it’s not just Switzerland that has artificially low corporate tax rates. Switzerland ranks 5th on our Corporate Tax Haven Index 2021, which is a ranking of countries most complicit in helping multinational corporations underpay tax. Other countries in the region that rank high on the index are Netherlands (4th), Luxembourg (6th), Jersey (8th) and Ireland (11th).
Netherlands and Luxembourg both have headline corporate tax rates of about 25 per cent, but both were found by the 2021 edition of the Corporate Tax Haven Index to have tax rulings in place that permit corporate tax rates as low as 5 per cent in Netherlands and 0.3 per cent in Luxembourg. Ireland has had had a headline rate of 12.50 per cent but had tax rulings permitting 0.005 per cent corporate tax rates, while Jersey set its headline tax rate at 0.
The only purpose of the artificially low tax rates is to entice corporates to be based there. Holistically viewed, this is problematic because it does not bring real economic activity to the region – it simply shifts profits there, from the jurisdictions where the economic activity is actually happening (and where taxes should instead be paid.) Some US$ 1 trillion is shifted to tax havens every year, and as our State of Tax Justice 2021 report shows, Switzerland alone cost the rest of the world at least $19 billion in lost tax a year by enabling corporate profit shifting.
Switzerland voting on introducing a minimum corporate tax rate
The Swiss parliament has translated the OECD minimum tax rules into a “national supplementary tax”. This will see multinational enterprises in Switzerland having to pay a top-up tax to raise their effective tax rate to a minimum of 15 per cent.
On June 18, the issue goes to the polls in Switzerland.
For Switzerland to implement the new EU rules, the federal government needs to intervene in the otherwise tax-sovereign cantons. Because of this, and because the change would result in differentiated treatment for certain classes of taxpayers (the largest corporate taxpayers), it constitutionally requires a public vote before a minimum tax rate can be introduced across Switzerland.
The Swiss vote is a false choice between tax havenry, and more tax havenry
At face value the Swiss vote seems to suggest a move towards undoing the country’s status as a tax haven. It’s an illusion: the choice is effectively between staying a tax haven, or becoming even more of a tax haven. The top-up tax is misleadingly being presented as an anti-tax havenry choice.
Public debate on the new measure has largely framed the measure as something Switzerland ought to do on in own terms and beat other countries to the punch on, rather than be pressured into it down the road under less favourable circumstances. Former Swiss Finance Minister Ueli Maurer made the calculation quickly: “If Switzerland doesn’t take the extra money, others will.”
But as Dominik Gross from Switzerland’s Alliance Sud explains, if Swiss citizens vote in favour of the minimum tax rate, rather than bring an end to the race to the bottom, the new rules will instead preserve Swiss tax havenry in a perfect, perverse loop. As Gross explains, “If Switzerland decides to adopt a minimum tax and to apply it to multinational groups in line with the OECD’s suggestions, it pre-empts other countries’ possibility under the same OECD rules to recuperate some of the tax on undertaxed Swiss income. Much of this income shouldn’t be Swiss income in the first place, given that it also includes profits shifted away from subsidiaries in those other countries.”
The potential spill over impact on other countries is significant. Switzerland is the country with the highest density of multinational corporations in the world, the home of some of the biggest financial companies in the world, and of very prominent players in the pharmaceutical, food and commodity trading industries. Instead, as Gross goes on to explain, “countries currently losing out on tax revenue to multinational enterprises using Switzerland’s tax havenry services won’t be empowered by the OECD’s global minimum tax rules to recover that lost tax revenue. Instead – shamefully – the OECD’s new rules will reward Switzerland’s decades-long harmful behaviour while multinational enterprises continue to underpay tax, particularly in the global south, as usual.”
It gets worse: Switzerland plans to use the additional revenues from the top-up tax to further improve Swiss “competitiveness,” through reductions in capital taxes or personal income taxes; the state taking over part of the companies’ operating costs; research promotion measures for start-ups; and direct subsidies for wages paid by corporations.
In practice, a vote for the minimum top-up won’t end Swiss tax havenry, but will instead amplify and rubberstamp it. Ultimately Swiss voters are being asked to choose between keeping Switzerland’s corporate tax havenry as is – or making it worse.
Issues with the current discourse on a minimum global tax rate
The Swiss vote is important for many reasons: if it passes, it will likely have a significant impact on the local economy, but also a broader impact on the taxing rights of other countries.
While the new EU rule rightly recognises the need to stop the race to the bottom, in its current formation it does nothing to stop it. Worse, it rubberstamps it. The current discourse positions a global tax rate – for EU companies, at least – at far lower than the 21 – 25 per cent that had originally been discussed. The USA has also already noted its unwillingness to adopt a minimum global rate in principle. And so, regardless of this particular vote, more work is needed to ensure traction for a minimum corporate tax rate in Europe, and beyond.
The tides are turning against tax havens: polling data from seven leading countries shows overwhelming public support for policymakers to crack down on companies using tax havens. The polling, conducted in the USA, France, Germany, Italy, Poland, the Netherlands and the UK, asked participants for their views on tying government bailouts (during the coronavirus pandemic) to companies’ record on paying tax, and cutting their ties with tax havens. An overwhelming 87 – 95 per cent of respondents supported the idea.
Image: Dmitri Popov dmpop, CC0, via Wikimedia Commons
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