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
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:
La nueva integración en América Latina, ¿ilusión o realidad?
El pacto fiscal para la región que impulsa Colombia entra en horas decisivas
Los dueños reales de las empresas y cómo encontrarlos
Y una nueva vuelta de tuerca para el debate de lo público y lo privado
INVITADOS:
Oscar Ugarteche, director del Observatorio Económico de América Latina, OBELA
We’re excited to share the news today that the Tax Justice Network is embarking on our most ambitious update yet of our flagship indexes, the Financial Secrecy Index and Corporate Tax Haven Index. The update will pivot our indexes to a rolling-update approach that will allow the indexes to capture countries’ regulatory changes in a more responsive and timely fashion.
This will be a shift from the approach we’ve been using since 2009, which has seen us update the indexes once every two years. With tax justice policies now at the top of fast-moving national and global agendas, we want to make sure our indexes can serve even better as responsive monitoring and troubleshooting tools for countries’ regulatory frameworks.
The updates to our indexes, however, will require us to push back the next update of the Corporate Tax Haven Index from 2023 to 2024, from which point both indexes will be published under the new rolling approach.
15 years of researching tax havens
The first edition of our Financial Secrecy Index was published in 2009. Its primary aim was to counter the false narrative that financial secrecy, and all the harm it enables, was a problem restricted to “corrupt” lower income countries and the global south. It wasn’t uncommon at the time to pin the blame for the glaring global inequalities and colonial legacies lower income countries suffer to their high levels of perceived corruption. We wanted to show that this corruption, and illicit financial flows more widely, was made possible – and was being mirrored, profited on and exacerbated – by rich countries pointing fingers.
The Financial Secrecy Index has undeniably been very successful in this effort. Rich global north countries like the US, Switzerland and Luxembourg are now widely recognised as the world’s biggest enablers of financial secrecy.
The Corporate Tax Haven Index, running since 2019, has similarly been successful in building awareness of the fact that the greatest enablers of corporate tax abuse are not islands on the peripheries of the global economy but a handful of economic heavyweights at the heart of the global economy that make up the membership of the OECD.
Over the years, the indexes grew from comparative tools initially meant to tell evidence-based stories with to the world’s most comprehensive database on countries’ laws and regulations on financial transparency and tax. The indexes are now widely used by governments, tax authorities, academics, campaigners and journalists to monitor, evaluate and advocate policymaking at national, regional and global levels.
When our first index launched – seven years before the Panama Papers – not many people, and even fewer governments, would have considered financial secrecy and global tax abuse to be a problem serious enough to warrant attention. The shift of the Financial Secrecy Index from a campaigning tool in 2009 to convince governments that these issues are a huge, harmful problem that needs fixing, to a policy troubleshooting tool today that people and governments are using to make address these issues just shows how far tax justice has come.
With the convincing now done, we want our indexes to better support the problem solving underway.
The future is rolling
Up until now, each update of an index would see us publish new data all at once for all of the 20 indicators used by the index to evaluate countries. Indicators have sub-indicators, and for each sub-indicator we conduct detailed investigative assessments and painstakingly collect evidence on each country’s legal framework. This is a huge, time-consuming job.
Once published, the data held under each of the index’s indicators won’t be updated again until the next edition of the index in two years’ time. This has meant each edition of the index is a snapshot in time of countries’ performance on financial secrecy and global tax abuse. Snapshots are very useful for highlighting problems, unearthing patterns and communicating stories.
But with governments now prioritising and moving faster on tax justice policies, both at home and in the international arena, desire has grown for an approach that offers more frequent snapshots that more responsively capture change.
Under our new rolling approach, an index’s indicators will be updated in batches over the course of an index’s regular cycle. So rather than publishing new data for all 20 indicators all at once every two years, we will publish new data for small sets of indicators multiple times a year, making our way through all 20 indicators over the course of two to three years.
Each update will see us collect and publish new data on the set of indicators next in queue in the cycle, but any changes a country makes that we are alerted to or indirectly come across that relate to indicators that are not in queue will still be included in the update. This will allow us to capture regulatory developments closer to when they occur and provide a more dynamic assessment of countries’ complicity in financial secrecy and global tax abuse.
What these improvements all mean is a steady stream of new data that captures change more responsively throughout the course of the year. This responsive spacing out of updates will help better spotlight steps forward – as well as steps backwards – on financial secrecy and global tax abuse that would otherwise go unnoticed. We believe this can make for more opportunities to advocate and celebrate positive policy change, and to scrutinise and hold governments accountable where policy regresses.
The rolling approach also gives us the flexibility to prioritise and release new data faster on indicators that relate to urgent policy developments, allowing us to more rapidly equip policymakers in national contexts and country representatives in international arenas with the data they need to evaluate policy change.
Improved IT infrastructure
As part of the transition to a rolling updates of our indexes, we are also working on updating our underlying IT infrastructure and data systems. Our aim is to further improve access to and usability of the extensive data our indexes hold. We want to make it easier for stakeholders to navigate and harness the trove of information our indexes provide.
A more sustainable work environment for our team
By embracing these reforms, we also aim to create a more sustainable work environment for our dedicated team of researchers and analysts. The demanding nature of the research required for our indexes necessitates balancing accuracy, thoroughness, comparability, fairness and keeping up with rapidly changing policies. The rolling update system will alleviate the intense workload associated with our previous biennial one-push updates, enabling our team to work more efficiently and maintain a sustainable pace, while continuing to produce high-quality analysis.
As we kick off this new exciting chapter for the Tax Justice Network’s flagship indexes, we remain committed to our mission of promoting tax justice. We’ll share more updates in the coming months, including information on when you can expect rolling updates of both the Corporate Tax Haven and the Financial Secrecy Index to be published. Together, we can continue to expose and address the policies that perpetuate financial secrecy and tax havenry, and fosterer a fairer global tax system.
We’re cross-posting this press release from our friends at the Centre for International Corporate Tax Accountability and Research (CICTAR) ahead of another shareholder vote on financial transparency on June 9th 2023, a trend we’re happy to see. The complex structures, through multiple financial secrecy jurisdictions, explain just why investors should be so concerned – and why we all need major companies to be required to publish their country by country reporting data…Here’s a webinar onthe investor case for tax transparency at Brookfield.
Through complex corporate structures, with an exceptional reliance on Bermuda, Brookfield manages over $800 billion in global assets. Related party debt payments and other artificial transactions may substantially reduce taxable income where profits are earned. Brookfield’s aggressive tax avoidance schemes appear to deprive governments and communities of much-needed revenue for essential public services, including health and education.
This contrasts with Brookfield’s claim that sustainability is “fundamental to our business and how we create value”. Brookfield’s tax practices and its impact on local communities are anything but sustainable. The global giant provides the bare minimum reporting on tax and its shareholders and fund investors are left in the dark.
The report’s case studies – from the United Kingdom, Australia, Colombia, and Brazil – highlight potential risks for investors, providing a strong case for shareholders to support greater tax transparency through adherence to the Global Reporting initiative (GRI) tax standard as required in the shareholder resolution.
Jason Ward, CICTAR’s Principal Analyst: “Brookfield’s claims of being a responsible investor and advancing a sustainable economy are in serious doubt. Extracting profits from privatised public infrastructure and aggressively denying governments of funding for health and education is by no means sustainable. If Brookfield’s global profits are artificially inflated by exploiting loopholes, investors are placing a risky bet. By voting for Brookfield to implement the GRI tax standard, investors can shed light on global operations and potential risks. If the company is operating sustainably and responsibly, then Brookfield’s executives and management should have nothing to fear from greater transparency. Australia’s forthcoming legislation is expected to require Brookfield and other multinationals to publicly report on a country-by-country basis, beginning in July.”
Brookfield is one of the world’s largest investment managers, specialising in direct ownership of assets and operating companies around the world, across a range of diverse sectors, industries, and asset classes, including private equity and real estate. Much of Brookfield’s capital is workers’ deferred income invested by global public pension funds. Brookfield’s investments and practices have direct impacts on hundreds of millions of people around the world.
-ENDS-
For more information contact for detail about the research and report please contact Jason Ward, Principal Analyst at [email protected] +61 (0)488190457 or Patrick Orr at [email protected] +44 (0)7443496583
Notes to editors: The Centre for International Corporate Accountability and Research, CICTAR, was formed by a group of unions and civil society organisations that believe workers and communities need more and better information about the tax arrangements of multinational corporations. CICTAR provides a centralised resource for information and analysis on the practical effects of corporate tax policy and practices.
Case Study – UK, Canary Wharf
In 2022, the UK was Brookfield’s largest global market where it generated $25 billion in revenue. There is no publicly reported information on Brookfield’s total UK profits or taxes paid. However, if its ownership of London’s landmark Canary Wharf complex, along with the Qatar Investment Authority, is any indication, it is likely that very little tax was paid. Canary Wharf is owned via holding companies in Jersey and Bermuda and hundreds of subsidiaries, including 35 in Scotland and 27 in Jersey. In 2021, Canary Wharf, worth a whopping £8,087 million, had annual operating revenue of £419.7 million, but pre-tax profits were reduced to a mere £51.9 million and taxes paid were only £11.5 million.
Welcome to the 66th 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.
الضريبة الموحدة على الشركات والفرص الضائعة
في الحلقة #66 من بودكاست الجباية ببساطة يناقش وليد بن رحومة ومنتجة البودكاست نورهان شريف، ضريبة الحد الأدنى للشركات المقترحة من منظمة التعاون والتنمية الاقتصادية (OECD)، بالإضافة إلى نتائج الدراسة المنشورة حديثًا بعنوان “خيارات السياسات وفرص التمويل للمنطقة العربية في نظام ضريبي عالمي جديد” من قبل اللجنة الاقتصادية والاجتماعية لغرب آسيا وشمال إفريقيا (ESCWA).
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 un monde en difficulté, où la fortune des riches a augmenté de manière alarmante par rapport aux moins fortunés, nous vous présentons la 50e édition de votre podcast en français sur la justice fiscale en Afrique et dans le monde. Et pour cette édition spéciale, nous avons eu l’opportunité de discuter avec Susana Ruiz Rodriguez, à la tête de la section Politiques de Justice Fiscale au sein de l’ONG OXFAM.
À travers cette entrevue, nous plongeons au cœur des détails d’un rapport récemment publié, alors que les ménages les plus modestes voient leur pouvoir d’achat décliner, que le nombre de personnes vivant sous le seuil de pauvreté augmente, et que les gouvernements semblent impuissants face à cette situation.
Pendant ce temps, les 1 % les plus riches ont accaparé près des deux tiers des 42 000 milliards de dollars de nouvelles richesses créées depuis 2020, soit presque le double de la part des 99 % restants. Au cours de la dernière décennie, ces 1 % privilégiés s’étaient déjà approprié environ la moitié des nouvelles richesses.
Il est temps de prendre conscience de cette réalité choquante et de s’engager pour une justice fiscale équitable. Rejoignez le podcast en français de Tax Justice Network pour cette édition spéciale où nous explorons les enjeux cruciaux de la justice fiscale avec une experte de renom. Laissez-vous captiver par les détails percutants de ce rapport révélateur, car il est grand temps d’agir face à cette inégalité grandissante.
A América Latina é a região com maior desigualdade de riqueza do planeta. Entre as várias causas da péssima realidade social e econômica está o abuso fiscal. De que forma um pacto regional sobre tributação pode contribuir para diminuir as desigualdades?
No episódio #49 do É da Sua Conta você escuta sobre quatro eventos que ocorreram, na Colômbia e no Chile, em maio de 2023 para avançar rumo à Cúpula por um Pacto Regional e à Plataforma com o objetivo de uma tributação equitativa, inclusiva e sustentável. Se houver participação popular, direitos humanos cabem nessa conta!
No É da sua conta #49:
A importância de uma economia baseada em direitos humanos e o papel solidário da tributação para dimiuir desigualdades, com Pedro Rossi (Unicamp)
Três encontros na Colômbia e um no Chile: os processos rumo à cooperação regional, com Sergio Chaparro (Tax Justice Network)
Transparência fiscal: o papel da adoção do registro regional e global de ativos, com Florencia Lorenzo (Tax Justice Network)
O papel do governo brasileiro para um pacto regional de tributação, com Antônio Freitas (Ministério da Fazenda)
“Política fiscal é composta por decisões sociais, em termos de financiamento de bens e serviços coletivos de transferências de uma parte da população para outra, dos mais jovens para os mais idosos, dos mais ricos aos mais pobres; pensar a ideia dos impostos como um pacto coletivo e a ideia dos direitos como algo fundamental nesse pacto.” ~ Pedro Rossi, Unicamp
“Anualmente, a região perde mais de 93 bilhões de dólares em receitas tributárias devido à existência de paraísos fiscais. Os membros ricos da OCDE e seus dependentes causam a maior parte das perdas fiscais e saídas financeiras ilícitas dos países latinoamericano. Então, um cenário cooperativo como uma cúpula regional é uma oportunidade de ouro para mudar de rumo.” ~ Sergio Chaparro, Tax Justice Network
“Não tem nenhuma outra região que chega na escala de deisgualdade da América Latina. Quando a gente pensa em ferramentas de transparência tributária, é preciso construir uma agenda que lide com essas questão também.” ~ Florência Lorenzo, Tax Justice Network
“Grandes corperações e pessoas de alta renda utilizam mecanismos de planejamento tributário para minimizar pagamento de impostos, então é importante esse tipo de diálogo e de cooperação na esfera internacional. .” ~ Antônio Freitas, Ministério brasileiro da Fazenda
At the heart of tax justice is the idea that everyone, everywhere, should pay their fair share of taxes. When they don’t, it results in an increased tax burden on the compliant few, in a decreased availability of funding for fundamentals like access to schooling, healthcare and social safety nets, and in an increase in the reliance on third-party funding, which reduces a country’s sovereignty.
By contrast, if one were to craft a poster child for tax “injustice” it would probably look a bit like this: a corporate bully making products that kill half its clients, costing our governments more in healthcare than they make from tax revenues. Its business model would be built on illicit, untaxed supply lines, and shifting what profit it doesdeclare to tax havens. All the while illegally spying on its competitors, polluting our beaches and stripping our forests, and hopping in bed with North Korea. And it gets away with it because it has captured the very same governments that are meant to regulate them.
They exist, and are collectively referred to as “Big Tobacco.”
Their business model comes at the expense of other taxpayers. Healthcare costs exceed tax revenues from tobacco companies. There is no accountability for cleaning up the pollution they leave behind (with the financial burden instead falling on society). Their abusive profit shifting leaves them paying obscenely low effective tax rates. Their opaque supply chains let them freely pump cigarettes into illicit markets, no taxes or duties paid. And they use illicit financial flows to launder ill-gotten income.
Unwavering profitability
The tobacco industry is unwaveringly profitable. British American Tobacco, for instance, has been the best performer on the UK stock market over the past 35 years. In global terms, while the volume of cigarettes sold may have decreased, its value has increased. There is a simple reason for its continued success: the multinational tobacco companies are masterful at keeping both their supply chains and finances almost entirely opaque, emboldened by the criminality that is hardwired into its very DNA.
Tobacco is the most widely smuggled legal substance in the world, with profit margins on a smuggled (that is, tax free) container of up to 2,400 per cent – making it more profitable than heroin, cocaine or arms, but with far less risk of imprisonment.
Most criticisms of the tobacco industry arguably focus on their marketing of addictive, killer products, but there is so much more about them that is “unjust,” starting, perhaps, with the fact that their tax contributions don’t cover the healthcare costs that arise from smoking.
1. Taxpayers spend more on the healthcare costs of smoking than big tobacco contributes in tax
Excise duties are different from other taxes, in that their primary purpose is to drive specific behaviours, by taxing public “bads,” and to help to compensate for negative impact they have on our societies. So it makes sense that excise duties are levied on tobacco products.
Unfortunately, they don’t nearly cover the healthcare costs of smoking.
Instead, smoking is a net negative for most nations, costing the world more than US$ 1.8 trillion annually in healthcare expenditure and lost productivity. Smoking costs us – as taxpayers – the equivalent of 1.8 percent of global GDP, every year.
A research paper on the health and economic burden of smoking in 12 Latin American countries exposes how health-care costs attributable to smoking represent 6.9 per cent of the overall health budgets of these countries – tax revenues from cigarette sales cover only 36 per cent of these expenditures.
It is an easy enough analysis to replicate on a country by country basis, by comparing the cost of smoking to the excise revenues collected. In South Africa, for instance, 97 per cent of excise revenues are spent paying for the direct costs of smoking alone (in other words, not accounting for any of the indirect costs like loss of productivity or second-hand smoke). In the USA, more than 29 times the amount collected through excise duties is spent on healthcare for smoking-related diseases.
But of course, tobacco companies don’t only pollute our lungs, they pollute our beaches too.
2. The tobacco industry’s pollution costs millions to clean up
As Tobacctactics reports, the tobacco industry’s emissions are larger than those for entire countries, including Denmark and Croatia – comparable to emissions from the oil, fast fashion and meat industries; and the tobacco product life cycle releases 80 million tonnes of carbon dioxide equivalent every year. If cigarette production ceased tomorrow, it would be equivalent to removing 16 million cars from the roads each year.
This not being devastating enough already, more than 600 million trees [AC3] are cut down every year to cure tobacco leaves, and another 9 million trees to make matches. British American Tobacco, for instance, stands accused of being responsible for 30 per cent [AC4] of the total annual deforestation in Bangladesh, cutting down 200,000 hectares a year. The industry’s reforestation programs are having little discernible impact on deforestation, planting non-indigenous, thirsty eucalyptus trees which are not intended to replenish the destroyed forests but for use in tobacco curing.
“Polluter pays” is a principle in international environmental law aimed at making polluters pay for the cost of their environmental harms, which can be further broadened to make the producers of polluting products accountable for ensuring the product can be responsibly disposed of (as is the case, for example, with paint in the US).
Oluwafemi Akinbode of Corporate Accountability and Public Participation Africa has suggested that litigation against oil company Shell in the Niger Delta could provide a template for introducing a more just approach in the tobacco industry.
That should reasonably include commitments to:
Introduce climate justice perspectives in debates around tobacco regulation
Implement the “polluter pays” principle in the tobacco industry, and hold the industry to account for clean-up cost reimbursements
Introduce extended producer responsibility to make tobacco multinationals accountable for ensuring their product can be responsibly disposed of.
3. Big Tobacco underpays its taxes ever year
At the British American Tobacco annual general meeting in 2014 an activist asked, “Mr. Chairman, I note that BAT reports on the amount of corporation tax paid in the UK (which appears to be zero) and the amount of corporation tax paid overseas, without providing a breakdown of the countries comprised within the overseas heading. The Sustainability Summary states that ‘Transparency is important to us’. With the importance of transparency in mind could you let us know in what countries the company does pay corporation tax, and can you confirm whether the company would be open to providing a country-by-country breakdown of taxes paid in annual reports in the future?” BAT’s CEO responded simply that there was “no need to report globally.”
In our 2019 report, Ashes to Ashes, the Tax Justice Network estimated that in Bangladesh British American Tobacco managed to shift $21 million in profits through royalties and IT charges, costing the country $5.8million in lost taxes. In Indonesia, they shifted $73 million through loans and royalties, costing the country $13.7 million in lost taxes. By booking Brazil’s profits in Madeira, they managed to shift $110 million out of the country, costing Brazil $33 million in tax revenues a year. In Kenya, by shifting dividend payments to the tune of $26 million, they avoided payment of $2.7 million in local taxes annually. Over the course of a decade these practices could have cost countries around the world $700 million in lost tax revenues.
Companies pay themselves royalties, management fees and IT charges. They lend themselves money. They send profits back home, away from where the commercial activity takes place. There may often be no commercial substance to these payments, instead existing solely or mainly to reduce the groups’ tax liability. And while the schemes involved are similar to those used in criminal activities, they get away with it all because multinational companies can back up what they do with opinions from tax advisers that make it difficult to establish the intent necessary for a criminal offence.
Grossly abused rules on taxpayer secrecy provide a veritable invisibility cloak to multinationals, making it extremely difficult to assess with any certainty the extent to which multinational companies are taken to task by tax administrations. While many of the investigations into their practices are opaque, there are some clues: estimates, like the ones in our report Ashes to ashes, and the comprehensive tax gap analysis done by HMRC in the UK; occasional disclosures by whistle blowers; and – historically – disclosures made by the companies themselves in their annual reports.
British American Tobacco unfortunately does not publish details of its contingent liabilities in its annual reports anymore, but when it used to, no fewer than 15 pages of their annual report were dedicated to listing tax abuse lawsuits it was defending across the globe. In the last report where these “contingent liabilities” were disclosed, they were facing an additional tax assessment of $124 million for aggressive tax planning using debt financing structures in South Africa, a $422 million income tax assessment in Brazil, a VAT and duty dispute to the tune of $218 million in Bangladesh, and a $131million tax assessment in Egypt. Altogether, the potential liabilities – should they fail to successfully challenge the assessments – total some $2.1 billion. That’s just for one year.
(The other Big Tobacco companies unfortunately don’t publish similar information. We back the tax standard of the leading international sustainability standards setter, the Global Reporting Initiative, under which companies’ uncertain tax positions should be reported, by country.)
In the following year British American Tobacco was sued by the Dutch government for €1billion for tax evasion (it had paid £1.6 million in tax on income of £1.6 billion – a tax burden of 0.1 per cent). British American Tobacco also shifts €1 billion in dividends via Belgium each year, again paying less than 1 per cent tax.
By underpaying tax at a colossal scale, Big Tobacco companies shift the tax burden even further on to the shoulders of ordinary taxpayers. This is tax burden made a lot heavier by the healthcare costs and environmental costs of smoking.
The Tax Justice Network’s recommendations in this area address both tax and transparency. We call for international tax rules to eliminate profit shifting by taxing multinationals according to the location of their real economic activity, and with an effective minimum rate. On transparency, necessary steps including public country by country reporting on the GRI standard, with full disclosure of uncertain and contested tax positions, and greater transparency about anti-abuse investigations of tax authorities.
4. Big tobacco knowingly supplies the black market
As much as 98 per cent of illicit trade in tobacco comes from legal manufacturing operations, many of which are owned, operated by or contracted by the four big tobacco companies, which continue to control more than 80 per cent of the world’s tobacco market. The math is obvious: if there is a significant illicit trade problem, it cannot exist without the involvement of the big four tobacco companies.
Indeed, evidence shows that the multinational tobacco companies are not only peripherally involved in supplying illicit markets, it is an explicit part of their business model.
This US settlement speaks only to the fact that British American Tobacco consciously and knowingly set out to circumvent sanctions. It doesn’t even begin to speak to the tax consequences of the “joint venture” in question.
There is nothing particularly shocking about this revelation, with questions about their involvement in North Korea and their dealings through Singapore having been raised for some time.
It’s a textbook example of the impunity with which multinational tobacco companies act: selling killer products in a prohibited market, then laundering the profits, all while paying little to no domestic duties on the cigarettes sold, or income tax on the downstream profits.
There is incontrovertible evidence of multinational tobacco companies benefiting from the smuggling of their own packs: in some instances, through “indiscriminate sales” where they choose not to track how the packs end up in illicit supply chains, but more often through structured, planned, organised schemes selling what they colloquially may refer to as “duty not paid” cigarettes, through corporate structures aimed at making their supply chains as opaque as possible.
Schemes like the one British American Tobacco ran in North Korea. Or their well-documented structure in the 1990s which explains how they did something similar through Hong Kong.
It’s a pattern of behaviour that is consistent, if nothing else.
“I believe you are the least credible witnesses that I have ever seen come before the committee of public accounts. You have lied unashamedly. If you did not know all I can say is that you must have been totally incompetent. If I were one of your shareholders I would say, ‘these guys are incompetent.’”
The four big multinationals have faced credible smuggling charges in at least Canada, Aruba, Colombia, the US, Buenos Aires, Equatorial Guinea, Guinea, Nigeria, the DRC, Cyprus, Syria, South Africa, Rwanda, Burundi, Sudan, Cameroon, Somalia, Malawi, Mauritius, Zimbabwe, Philippines, Hong Kong and Russia.
“Management of BAT was aware duty-not-paid cigarettes would ultimately be smuggled in China and other countries. There could be no other explanation for this enormous quantity of duty-not-paid cigarettes worth billions and billions of dollars. BAT’s irresponsible behaviour amounted to assisting criminals in transnational crime.”
British American Tobacco’s own documents suggest that the company may historically have been involved in smuggling in around 30 countries. BAT’s own managers note how smuggled cigarettes accounted for nearly 30 per cent of BAT’s sales in Canada, and accounts suggest that at one point as much as 25 per cent of BAT’s global profits may have come from selling contraband in China. Multiple sources document their strategies in China, including memorandums that explicitly explain eg, “…alternative routes of distribution of unofficial imports need to be examined.” That is just code for “smuggling.”
5. Big tobacco’s illicit financial flows allow dirty money to seep into the global financial system
As the UN notes, once illegal money has been laundered through the global financial markets – as some 70 per cent of illicit income in fact is – it is much harder to trace its origins.
In the simplest terms, it is virtually impossible to generate illicit income – in this case, from sales on the black market – and not create some kind of illicit financial flow. That income has to be accounted for somewhere, to ensure that the company’s shares remain popular.
“Defendants created a circuitous and clandestine distribution chain for the sale of cigarettes in order to facilitate smuggling. The decision to establish and maintain this distribution chain was made at the highest executive level of PMI. Defendants have collaborated with smugglers, encouraged smugglers, and sold cigarettes to smugglers, either directly or through intermediaries, while at the same time supporting the smugglers’ sales through the establishment and maintenance of so-called ‘umbrella [cover] operations’ in the target jurisdictions.”
In 2015 British American Tobacco was accused of money laundering in South Africa.It paid a network of undercover agents using Travelex cards registered overseas – but in other people’s names, so that the payments could not be traced. One agent, for instance, received at least £30,500, either in cash or loaded on to Travelex cards registered in the name of a BAT employee in the UK. An information request from HMRC in the UK confirms that the agency identified at least eight South Africans who had a “peculiar relationship with BAT” and received payments from BAT through “concealed transactions.” UK tax authorities described these as an “al-Qaeda-style” method of payment. Correspondence between the agent and BAT shows she became worried about BAT’s surreptitious payment methods. A senior BAT employee assured her that the same method of payment is used by BAT UK around the globe for payment of its other undercover agents.
These illicit financial flows come at a cost – they reduce transparency, making it impossible for our tax administrations to properly assess the taxes due by behemoths like British American Tobacco. But they do more than that: they allow listed companies to engage in purely criminal behaviours.
Conclusion
Big Tobacco’s behaviour is the very definition of “unjust.”
Multinational tobacco companies pose an enormously complex risk – one that includes elements of illicit trade, but one that goes far beyond just that. There is ample evidence of multinational tobacco companies being involved in smuggling their own product. But what lies beneath that is a series of smoke and mirrors that covers how they illegally spy on their competitors, how their structures allow them to pay virtually no corporate income tax, how they inflate sales volumes through fictitious revenue schemes, how they abuse their relationship with tax agencies to secure even more preferential treatment, and how their tax abuse is hardly distinguishable from the criminality perpetrated by organised crime syndicates.
Ultimately, the end result from both their more sophisticated schemes and their dalliances with illicit trade are the same – monies lost to the state, and us as taxpayers having to bear more of the tax burden.
There is something fundamentally unjust about the way in which multinational tobacco companies engage with our tax systems. Complex structures allow them to shift profits and underpay corporate income tax, while opaque supply chains allow them to move billions of cigarettes untaxed. Policies meant to curb tax abuses are diluted and rendered ineffective through relentless lobbying and corruption. Enforcement agencies are coaxed to look the other way with donations of vehicles or are plied with evidence on their smaller competitors, illegally obtained through their corporate espionage programs.
This year on World No Tobacco Day, we say no to multinational tobacco companies shifting obscene amounts of profits. We say no to opaque lobbying and engagements by multinational tobacco companies. We say no to tobacco companies capturing our enforcement agencies. And we say no to opaque supply chains and opaque global financial systems that provide them with an invisibility cloak.
Image credit: Tuxedo Tobacco, Public domain, via Wikimedia Commons
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:
When dominant multinationals get to run the world, it’s not a happy place. Or a very secure one. For a long time governments have failed to take the threat from monopolies and the corporate concentration of power seriously, and deal with it. But recent crises have demonstrated how the neoliberal era is crumbling around us and governments must take action. In this episode we look at the challenges and how to tackle this in the public interest.
And, in the US, Minnesota nearly took a historic step for tax justice this month that could have changed everything by bringing corporate profit shifting to heel. The lobbyists said it was the end of the world as we know it – and sadly, they won – for now. What was the big deal? And what are the possibilities for other states and other countries?
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. Let me know what you think of the show! Coming up later on the Taxcast – the state of Minnesota nearly took a historic step for tax justice this month. But the lobbyists won – for now:”
Alex Cobham: “If you’re a big four accounting firm or one of the major law firms that support multinational companies in their tax abuse, this is guaranteed to freak you out. What you want is to make sure that nobody ever tries it, that they feel the threat, the pressure before they get to that decision point, and they don’t go ahead. You tell them everything will go wrong for you, you tell them anything!”
Naomi: “Aaaah it was so close! We’re going to talk about that later. But first, the threats from monopoly power. A world where dominant multinationals get to run the world isn’t a happy place. Or a very secure one, as it turns out. For such a long time governments have been absent from taking the threat seriously and dealing with it. In the United States what they call the ‘anti-trust’ movement has a long history – the Biden administration has actually been much more active in protecting people and the economy, more than any administration in decades actually, there’s a VERY long way to go, obviously. But everywhere really, the threats posed to us all from monopolies just aren’t that well understood, some of the effects on our lives aren’t that obvious. And really, it’s more accurate to call it ‘concentrated market power’, ‘cos we’re talking about saturation by only a handful of companies in each sector. So what does that look like? Well, according to one estimate we’ve got a problem when only four companies are getting 40% of sales. That’s a market that’s distorted and it’s lost its competitive character.”
Nick Dearden: “The increasing build-up of corporate power, the increasing concentration of corporate power over lots of different bits of our economy over many years is actually the central feature of our economic system.”
Naomi: “This is Nick Dearden of Global Justice Now:”
Nick Dearden: “If four corporations have cornered the entire global market in grain, they effectively decide what gets grown and how, they decide what food we buy and at what price. They decide what we eat. And indeed who doesn’t eat. And you can apply that logic across the whole economy.”
Naomi: “It sounds a bit simplistic to say this but it seems like we only have one value – and that’s the sacred right to make a profit, no matter who gets hurt or killed. The climate crisis and lack of proper action is an obvious example.”
Nick Dearden: “Yes, and it’s endangering our very existence on this planet. And if we’re honest, you know, big business does not operate in any kind of a free market whatsoever.”
Naomi: “It’s often hard to see the era you’re living through when you’re in it, but we’ve been living through a neoliberal era for a very long time. But now it’s beginning to crumble. Here’s journalist Nick Shaxson, formerly of the Tax Justice Network and now with the excellent Balanced Economy Project. He’s speaking here at Yale University and describes here the kind of waking up with a hangover from the big party the night before…”
Nick Shaxson: “The new idea was that we should stop worrying about democracy, we should stop worrying about power, we should stop worrying really about the structure of markets and we should boil everything down narrow everything down to consumer prices and as long as consumers are happy everything’s great, and we should also focus on the internal efficiency of corporations, if corporations are efficient then they’re going to spread their wealth around and everything will be fine, so don’t worry about these other issues. This story, that was one of the components of what many people call neoliberalism, spread rapidly, it was obviously very well funded and it became the dominant narrative and it effectively allowed for the massive consolidation that we’ve seen since then. Private equity firms were among the drivers of this consolidation, buying up firms all over the place and bolting them all together, but many other drivers of consolidation. There was effectively a falling away of the state, the state decided to stand back and this was both under Republicans and Democrats, all the way up to the Trump administration. And so you had this story that once you start picking at it’s so obviously incoherent, it’s obviously wrong but power was with it and it carried, it survived and flourished across the world, spread across the world, spread to Europe, spread to other countries to Australia to Asia, to lower income countries and so we have the giants of today and there’s pretty much no government anywhere has been effectively cracking down until very recently. So the new movement came along with this new story saying ‘we need to start thinking about power again, we need to start thinking about democracy, we need to start thinking about the structure of markets and we need to start taking down these giants and regulating with confidence again in the interests of people.'”
Naomi: “Yes! Obviously the most recognised monopolies are easy to see because they clearly wield too much power – like Facebook, Amazon and Google. And not all monopolies are a bad thing – I mean, a well-run state healthcare monopoly that has the buying power to keep medical costs down and tackle pharmaceutical giants seems like an undeniably good thing. The National Health Service here in Britain is humanity at its very best, I’ve seen that for myself. And we used to have public-owned railways, public-owned water – sadly we lost those. But we can’t say all state-owned monopolies are run in the public interest in the ways they should be – we’ve got creeping private sector involvement, and sometimes the same extractive processes as any other dominant company. So our solutions must be about enshrining rights to essential things we all need, keeping them firmly in the non-profit sector. It’s gotta be also about democratising ownership and control, as well as – of course – breaking up corporate power where we need to.
And it’s bad. Very bad. In the States, despite the Biden administration being the most active for decades in tackling these big mergers – the top 1% of corporations make 81% of all sales and they own 97% of all assets. You can check out stats like that on www.businessconcentration.com – it’s pretty interesting. The biggest market players dominate our every waking hour – what we eat every day, how we travel, how we get our news and information, who we bank with, they influence what decisions our governments make, how much we pay for stuff, how much we fall short in tax revenues and the consequences of that. But if it seems like we’re taking on the impossible here, we’re not. As any good freedom fighter will tell you. Here’s Nick Shaxson again:”
Nick Shaxson: “I worked with the Tax Justice Network for many years. I started not quite at the very beginning but near the beginning, and it was just a tiny group of us and we had some demands and policy proposals that you know the powers, you know everybody said ‘oh that’s utopian nonsense, nobody’s ever going to do that’ and all of those proposals are now to one degree or another, with many gaps obviously, but have been accepted as mainstream policy by governments around the world. I’ve seen from the inside of a movement having you know some significant success and, you know, we made a lot of progress. Not as far as as much we want but the whole international tax justice movement, we did achieve a lot.”
Naomi: “That’s Nick Shaxson there, speaking at a recent event held by Global Justice Now called ‘the threat of monopoly capitalism.’ And you can’t really separate monopoly power and market concentration from tax havenry and corporate secrecy – all of them have happened because we’ve allowed huge imbalances of power across our economies. And just like tax havens and the companies who use them, it’s the same, it’s all about ‘escape’ – escaping things they don’t like – whether it’s taxes other small businesses pay, regulations, laws, accountability when things go wrong, transparency about how they operate or which politicians they’re funding. Here’s Nick Shaxson again:”
Nick Shaxson: “One of the things that I think is very important is that monopoly is – it’s like privatisation, it’s a form of privatisation, in a way privatisation of regulation because if you get a bunch of companies together and they form a cartel, their bosses collude to um rig prices or rig wages or whatever that is subject to public regulation, there’s anti-cartel laws and rules around the world and they can be stopped, they can be fined, they can be punished for that with public state regulation. But the alternative – and that’s what all the companies have been doing instead is just merging, they just join together and once they’re merged together it’s like a reinforced legalised version of a cartel and the public regulation has been pushed out, so we are seeing monopolisation as a kind of privatisation of regulation.”
Naomi: “Underlying the neoliberal era and globalisation was always the philosophy that markets will answer our needs and solve our problems. The pursuit of what’s the cheapest, with no other consideration – the State’s job is to get out of the way. But we’re finding out why that philosophy is so dangerous – and why markets left to their own devices can do the opposite of solving our problems. Here’s Nick Dearden again:”
Nick Dearden: “You can take a number of different sectors and look at it and, and see the problems. But what was really interesting to me about the pharmaceutical example was the more I started looking into it, these pharmaceutical corporations like to say, ‘we need these monopolies because otherwise we’d have no incentives to provide the medicines that society desperately needs.’ And it’s a complete and utter lie. Actually, the more power they have accumulated, the less creative, the less inventive they have become. It isn’t simply a matter of, they make some really important medicines and then they squeeze as much profit out of it as they can. That was may be the case in the 1960s and 1970s. Today, it’s not like that at all.”
Naomi: “Yes, we’ve seen how big companies put their efforts into financialising every aspect of what they do, and that includes minimising their taxes. Pharmaceutical companies – just like in pretty much every sector – have merged to the point where in the US between 1995 and 2015, 60 pharmaceutical companies merged into just ten. The number of companies producing vaccines fell from 26 in 1955, to 18 in 1980, to only four in 2020. Do you remember that urgent chasing of covid vaccines by different nations? This stuff left the world at a huge disadvantage dealing with Covid, especially poorer nations.”
Nick Dearden: “Pharmaceutical corporations are more like hedge funds. They don’t do, they don’t invent any of the medicines, you know, or very few of the medicines on their books, they buy out other companies that have done that research, they then sit on literal monopolies, I mean, you know, through the intellectual property, basically only that that company can make this medicine for at least 20 years. And there’s all sorts of ways that they try to extend that, and they squeeze as much out of it as they possibly can, because they’re making so much on every single sale, if you can only sell it to a few rich countries’ health systems, well, that’s okay, you know, and actually the very value of these companies comes not really from how much they sell, but from the value of the intellectual property they hold and how much investors assume that’s gonna be worth in the years to come. So it’s extraordinary really, because this system is supposed to be all about, you know, rewarding innovation. But what it’s actually done is completely hollowed out these enormous corporations. And I mean, I’ve just looked at the amount that these corporations return to their investors through dividends and share buybacks, it way exceeds their research and development budget, indeed for most, for most years, it exceeds their profit. It exceeds their net income. Because we live in a political system, in an economic model that assumes that the market will provide, it assumes that these corporations have all the answers, we’ve eroded all the institutions that would have allowed us to provide a counterbalance to all this. And so when the pandemic struck, even though basically all of the research into those medicines had already been done by the public sector or small biotechs, at the end of the day, we couldn’t actually produce them because we’re still dependent on these tiny pipelines. And so we had to turn to Pfizer and Moderna and AstraZeneca and say, ‘take all the money you want,’ um, handed it over. Now AstraZeneca behaved a bit differently, of course, but Pfizer and Moderna, I mean, sold hardly anything to the vast majority of the world, they just weren’t interested. Absolutely shocking! And that’s not just, it’s not just morally wrong, it’s stupid because as long as there were huge parts of the world unvaccinated, we were all at risk of a new, more virile and more deadly strain of the virus coming out and undermining the vaccines that we had had. But that seemed to be as of nothing to the pharmaceutical companies because well, if the, if the pandemic goes on longer, you know, there’s simply more money to be made. So there’s no interest, it’s not only that there’s no interest in equitably selling the medicines the world needs and researching the me the medicines that that, that, that all people urgently need. There’s not really any interest in researching anything other than, you know, drugs that have marginal differences on chronic diseases because those are the most lucrative drugs.”
Naomi: “And even if politicians in the wealthiest countries in the world don’t care about equitable access to drugs at prices that aren’t taking advantage of market dominance, they should care about this:”
Nick Dearden: “We are faced with antimicrobial resistance. Yes, we’ve overused antibiotics massively, but the pharmaceutical industry hasn’t researched any more of these things because there’s no profit in it, essentially because they would be second, third generation antibiotics that wouldn’t be used very much for the next 15, 20 years anyway. They’re not gonna make anything of them. Look, you just need to nationalise parts of this industry. It is simply not fit for purpose.”
Naomi: “When you look at the logic of governments letting the biggest companies decide on supply chains based only on the bottom line – without any thought about global security, the world we’ve allowed corporations to build gets riskier and riskier for all of us. This is MEP and competition lawyer Stéphanie Yon-Courtin speaking in Europe at an event called ‘How Monopoly Threatens Democracy and Security:'”
Stéphanie Yon-Courtin: “The pandemic has highlighted the EU’s long-existing structural problems related to the supply of medicines and the higher dependency on third country import for certain essential and highly critical goods and materials. In the wake of the pandemic it is as if we finally found out that we were 100% dependent on third countries such as China or India. One of the key lessons of the crisis is that there is a need to get a better grip an understanding of where Europe’s current and possible future strategic dependencies lie. The notion of resilience of supply chains was already much discussed before the pandemic in the context of ensuring availability of resources necessary for the twin transitions – green and digital – of the economy and society in Europe. It became as pertinent as ever with the crisis. Now facing this situation it seems clear that our competition policy plays an essential role – it’s one of the tools, a key one to increase our strategic autonomy and our industrial policy that could secure supply chains. I think we are slowly moving from a naive Europe to a pragmatic and realistic one – no choice. Now, with the Russian invasion to Ukraine we have no choice, no choice to face our dependency to Russian gas.”
Naomi: “In the case of Russian gas, markets – and the German government didn’t come out of this well either – allowed storage and pipelines to be monopolised, ignoring the obvious security threats. It ended up enhancing the dominant power of Gazprom, majority-owned by Russia, an expensive lesson. Here’s Christopher Gopal of the Global Supply Chain Center, at the University of Southern California, he’s speaking at the same event:”
Christopher Gopal: “The Russia issue is huge and will cause a great deal of grief to a lot of people, but this is nothing compared to the type of impact that something over in China and Taiwan can have on us. Russia has probably four to six major leverage points by which it can disrupt supply chains and some of them are not global. China has hundreds. Just to give you one example and when I say people are not ready for this, when we talk about the chip industry and the chip problem, what we felt in covid was a hiccup. If the chips from China and Taiwan are blocked from coming in for any reason, those two together own about 20 to 30% of the world’s production and the high-end chips. More to the point, the impact is not just on the chip industry, 100 billion dollars of plus. Those are the primary industries, the impact goes under the secondary industries, defence and aerospace, automobiles, heavy trucks, industrial equipment, infrastructure, all of these things and then cascades to things like tourism, food production, traffic lights, shipping, everything else. Something like that would have enormous impact, it could bring countries to their knees. I mean to say even worse – there could be even worse than semiconductors is pharmaceuticals – China produces, you know, the numbers vary from place to place but 90% of the antibiotics. A lot of the pharmaceutical chemicals, the APIs used in the production of pharmaceuticals, cortisone, all of these things, ascorbic acid – if that gets cut off we have no pharmaceuticals, we have no antibiotics, you know enough with the, the place comes down because lack of semiconductors, the place comes down because we have no medications. Our PPEs and so on are built in those areas, a cut off in those areas would be calamitous.”
Naomi: “Here’s MEP Stéphanie Yon-Courtin again on better competition policy Europe needs:”
Stéphanie Yon-Courtin: “If the political will is there, that’s another question. Let me name a few, four main milestones. First I think a paradigm shift in the objective of competition policy – the objective of competition policy I think has moved from a single perspective of maximising the interest of consumers to a more balanced objective, particularly with regard to taking into account Europe’s industrial interest. Second is the resilience – the resilience is now mentioned clearly as an objective of competition policy, and from now on competition policy instruments will also have to take into account resilience issue for all supply chains, that’s quite new. Third point is the announcement of a new competition framework, you know, including stated for semiconductors. I think this is a major step forward and a kind of an implicit recognition that the current framework is not adequate to address the urgency of the crisis and the importance of this dependency issue. We need to multiply this approach I think without waiting to be paralysed by drug, semiconductor shortage and think about now, right now for Europe. And the vaccine crisis has shown us that being excellent in research is not enough to meet our needs, we need to know how to produce, we need the right scale and vision necessary to overcome persistent industrial weaknesses.”
Naomi: “Big challenges – much of them caused by markets and market domination by a few companies. But that sounds to me like many European governments are recognising that States can no longer just stand aside. And at the heart of all of this has been misconceptions about ‘competition.’ You hear that word all the time, but in the neoliberalist era it moved from meaning businesses competing with each other on innovation and efficiency, to competiton between nations – so, governments climbing over each other to cut labour rights, cut taxes, cut regulation; a race to the bottom. In the long run that reduces real competition when it comes to creativity and diversity – small and medium companies get crowded out and governments don’t seem to know how to encourage anything else. And something as valuable as ‘collaboration’ doesn’t get a look in. But, going back to the pandemic for a moment – despite all those troubles in – for example – sourcing PPE during the pandemic across the world – do you remember that? What’s happened since then? Well, most countries have defaulted to relying blindly on markets again. Christopher Gopal again:”
Christopher Gopal: “From all my discussions with people in Europe and they’ve been mainly companies I have to have add, nobody, not Europe, has governmental policy. We are going back to the old normal, you know the financialisation of the supply chain where we hit just-in-time inventory, lowest cost, assets going out and for instance one of the biggest companies in the US, in the world rather, has just announced that they’re going back to China for cheap chips. Not having learned any of the lessons.”
Nick Shaxson: “This is about the corruption of markets really and this is about markets not working as they should.”
Naomi: “Nick Shaxson again:”
Nick Shaxson : “I think the United States has been so lax for so many years that anything that Europe does look good. Having said that, the record in Europe is appalling. Just for example I was looking the other day at the merger statistics. I think they get about 15,000 mergers a year in Europe and of those maybe I think three or four hundred get notified you know ‘here’s the merger it’s potentially gonna cause competition concerns, you guys are gonna have to look at it.’ If you look at the record of the mergers that are notified, which are mergers of potential concern since 1990, 0.4% of those have been prohibited – almost nothing – they just don’t block mergers, so that’s a sign that there’s serious trouble. Anybody who looks around in Europe will know that we have a problem with big pharma, with big agriculture, with big retail, with big tech, with the big four accounting firms, with big banks – we’ve got the same problems. We have social democracy here in Europe that takes off some of the hardest edges of these things but I think that whereas social democracy in Europe has been quite effective in certain areas such as tax policy, in terms of excessive concentrations of power, I think Europe has basically drunk the kool-aid. The fines that you see – several billion dollars on the the tech giants look big – you know once you have the number of billion in there it makes a great newspaper headline but again it’s almost a rounding error in the actual size of the profits that these companies are making, so Europe is especially weak in this area. It’s a very nuanced picture, of course there are positive things you can say about Europe, but Europe is not in a position at the moment to spread a beneficial Brussels effect around the world in this area. We’re working with hope to spread this new story and over time this is something that takes years to do to shift things in Europe so that Europeans wake up and I think Europeans are quite capable of waking up and doing things differently, I think there’s a lot of questioning going on.”
Naomi: “Nick Dearden again:”
Nick Dearden: “To prevent the increasing concentration of capital is really important. The problem is, I think competition regulators over the last 40 years have almost forgotten how to do that job. Although I am heartened by the fact that an antitrust activist was appointed, to the head of the US central regulation body, Lina Khan, and I’m even more heartened that she seems to be taking that job really seriously, I mean, only this week really interesting that they’re challenging a big pharma merger. And so, you know it is not the only answer, but it is part of the answer. We’re in this economy, which is supposed to be all about, you know, promoting small businesses. And we hear this from government all the time, and it’s just the opposite of the truth. In the sector I know best, the pharmaceutical sector, your only option, your best business model is ‘how can I get bought out by Pfizer?’ That’s it! I mean, what kind of a balanced economy is that creating? None, obviously.”
Naomi: “Yeah, quite! So what are the key things would you say to tackle market concentration, monopoly power?”
Nick Dearden: “I would argue three things. First of all, what Biden has already started to do, which is industrial strategy, which is using the power of the state procurement and so on to begin shaping the economy. The thing I want to make sure is that doesn’t just become a form of corporate welfare, that doesn’t just become about de-risking the kind of investment that you want. There’s got to be a very clear public return. If we are putting this in, what do we expect back? And that’s gotta be about reshaping the way that the private sector operates. I think the second thing obviously is, is more use of alternative forms of economic unit, whether that be public sector but also, you know, cooperatives, I mean, let’s give some real competition to these behemoths and create that more balanced economy. And that’s not just gonna happen, you know, that needs a framework and a plan by government. And I think third, and I know this is gonna be welcome on your show, it’s financial regulation – because the deregulation of finance is absolutely crucial to how all of this happened. I mean, two or three massive investment funds now own a significant proportion of virtually all corporations traded in London and New York, and they are driving these kind of incentives ever more towards profit maximisation, and that is helping this corporate concentration, there’s only the big monopolies that can thrive in this kind of world. Because of financial deregulation, of course, as well, these behemoths can shift their wealth around the world and avoid taxes because we have such a financialised economy – as we’ve already talked about, you know, big pharma doesn’t particularly make medicines that we need anymore, what its job is, is to maximise shareholder wealth. So financialisation is the other side of the monopoly capitalism equation, and I think we cannot properly bring this kind of economy to heel and make it work in the public interest without controlling that, and without regulating how capital can be used.”
Naomi: “Yes, yes. And tax is such a strong tool for shaping markets and encouraging things that we want to see and discouraging things that we don’t want to see. This comes down to the fundamentals of the purposes of tax, I mean there’s five Rs of tax – everyone knows the Revenue ‘R’ – but the Repricing one is crucial here – pricing damaging behaviour out, and incentivising activity that’s beneficial to the majority of us. I’ll put a link to the five Rs in the show notes, but tax fixes, just off the top of my head – there’s excess profit taxes, financial transaction taxes are an obvious one, wealth taxes, windfall taxes, taxes to address the climate crisis – the list goes on, and governments just aren’t using the taxes that are available to them in the public interest. OK, thank you Nick Dearden for joining me on the Taxcast. He’s got a book coming out all about the pharmacuetical industry later this year – Pharmanomics: How Big Pharma Destroys Global Health – I’ll link to that in the show notes.
So, let’s head to Minnesota now in the United States. There were many eyes on Minnesota this month – we had great hopes, but there was huge scare-mongering by lobbyists, all because it looked like Minnesota might take a historic step in making big companies active there do worldwide combined reporting. It could have raised an estimated $600 million in extra corporate tax revenue over the next two years. Very sadly, the enabler professions and their arguments won the day and the proposal was dropped from the bill. But why do they hate it so much? Here’s Alex Cobham of the Tax Justice Network:”
Alex: “The idea of worldwide combined reporting sounds kind of technical and boring, but it’s really powerful. What we’re talking about is when US states decide the basis on which they’re going to apply a formula to work out how much profit they should be allowed to tax from a given multinational. Instead of looking at their share of the multinationals’ declared activity in the United States as a whole, they would look at their share of the multinationals activity globally. Now what that means is at a stroke, you put a pen through any profit shifting that the multinational is doing anywhere. And you’re just looking at, you know, if 1% of your global sales and employment, let’s say, is in Minnesota, if that’s the formula that you’re using, then 1% of the global profits will be taken as tax base by Minnesota. So you more or less switch to a complete unitary basis, you assess the profits at the unit of the multinational itself and you give up on the arm’s length principle that the OECD and before that the League of Nations have been defending for a hundred years, even though it’s become increasingly clear to everyone that it just doesn’t work, and that profit shifting is the only result of trying to do corporate taxation on that basis.
But here’s the thing, because this is such a good idea, because it is simple and powerful and pretty difficult to, to cheat, there’s enormous interest for the lobbyists in making sure it doesn’t happen anywhere. Because if it happens in one place, whether that’s one US state or one country, as soon as it becomes clear that it works, which, you know, I think there’s a general confidence that it absolutely will, and that it raises significantly more revenue, um, than trying to make arms length pricing or anything else work, then the demonstration effect to everyone else is going to be enormous. Why wouldn’t everyone just do the same thing? And of course, if everyone does the same thing, the effect is that there is no possibility of double taxation. If everyone says ‘we’re gonna take our share of the global profit,’ then if that’s done right, all global profit will be taxed precisely, once and once only. No double taxation, but also no double non-taxation. So if you are a big four accounting firm or one of the major law firms that support multinational companies in their tax abuse, this is guaranteed to freak you out. What you want is to make sure that nobody ever tries it, that they feel the threat, the pressure before they get to that decision point. And they don’t go ahead. You tell them you’re gonna lose all of your investment if you do this, everything will go wrong for you. We will hang you out to dry. We will make an example of you as people who don’t understand how to do corporate taxation. You tell them anything, you tell them, you’ll give them money for their political campaigns if they don’t do it, whatever it is. Not that I’m accusing anyone here of corruption, I’m sure, but the point is, you are desperate to stop that first state, that first country trying this. And, you know, that’s kind of what appears to have happened in Minnesota. We don’t know the basis on which the lead Democrat who brought this all the way forward flipped at the last moment and just took it out completely. But we do know there was an enormous amount of lobbying and we do know that that’s what happened. So we don’t know the basis of that decision, but you can be sure similar things will happen in each other case.”
Naomi: “I bet! If Minnesota had passed this proposal to implement combined worldwide reporting it could have shone the light not just for other US states to follow, but for other countries too – they could implement this couldn’t they?”
Alex: “The G24 group of lower income countries brought forward a proposal, you know, not dissimilar to do that globally, within the OECD inclusive framework process. And that was what pretty much demonstrated that the inclusive framework was not inclusive because the framework group of countries agreed that that would be the work plan for the secretariat, they would evaluate it and a couple of other options and then come back. And the secretariat at the OECD never did that. They didn’t do it because before they got there, the United States and France did a bi-lateral deal on a completely different approach, and then the secretariat came back to the inclusive framework and said, ‘hey, this is, um, this is the way we’re gonna go instead.’ So it became immediately clear, this is back in 2019, that the inclusive framework was a sham. There was no inclusivity for, for non-OECD members and that that type of option, even though the OECD had promised to the world to go beyond the arm’s length principle in that process, they didn’t mean going that far beyond, just a tiny tiny tiny little bit as they’re now trying in Pillar One. And that’s why the OECD process, of course, isn’t gonna really change the world because they gave up on the original ambition. And again, we’ll never quite be sure if that was the result of really intense lobbying but we know there was an enormous amount of lobbying and we know they were pushing very hard to limit the extent to which the OECD did actually go beyond the arms length principle. So here we are.”
Naomi: “Here we are, yeah! So, lower income countries already tried to propose something like this combined worldwide reporting in the OECD, the not-so-inclusive OECD – which is after all, a rich countries club? Would it be easier, or harder for countries, rather than a US state like Minnesota to implement this?”
Alex: “You know, it’ll be interesting to see which is the next US state to consider this, given how much revenue it’s likely to to generate. For countries though, there is a limitation, which is that most countries have a significant number of double tax treaties that probably makes it impossible to go straight to a unitary approach of this sort and simply tax your share of the global profit. Now, that doesn’t mean that no one should do it. What it means is you probably want to do it in a group of like-minded countries and agree together that you will set aside these treaties. The European Union is still taking forward its BEFIT proposal, which would effectively do this within the EU. And there’s a question there about whether that can be extended, as in the Minnesota proposal to a worldwide combined reporting basis.”
Naomi: “BEFIT – that’s the EU’s “Business in Europe: Framework for Income Taxation” – it’s supposed to be a ‘single corporate tax rulebook for the EU, providing for fairer allocation of taxing rights between Member States.’ So where do the G24 group of lower income countries go? I mean we all know the OECD isn’t the place to get what they want, so how about the United Nations?”
Alex: “There’s also the process now around the, the proposal for a UN framework on international tax corporation. We know that both the African and the Latin American and Caribbean regional discussions have included the possibility of pushing for unitary taxation, which could be done at the regional or the UN, the full global level. So in a sense, if things get blocked by some OECD member countries, for example, within the UN process we could see regional moves to jointly, unilaterally move towards unitary taxation and their sort. So there’s a lot to play for. That’s a huge amount of revenue involved, in effect the 312 billion, that’s our last estimate for the annual tax revenue losses due to corporate tax abuse by multi-nationals. That would more or less be available to be reclaimed if countries switched to a unitary taxation basis. Bigger amounts of money in high income countries, but a bigger share of current tax revenues in lower income countries. So really a pretty strong incentive for everyone to make that shift. And it’s only the lobbying that continues to hold that very sensible step back. This year might be the year that we see that dam start to crack, and particularly within the UN process and the related discussions. Whether or not this proposal starts to become more concretely possible Minnesota might just be an early sign that this could be on the way.”
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
