Full damage done by UK dependencies Jersey, Gibraltar and Guernsey now shown
We are issuing a correction to our recent State of Tax Justice 2023 report in light of a coding bug spotted by our team that had resulted in some data on 10 smaller jurisdictions being left out of the report’s total tally of global tax abuse.1 This error resulted in State of Tax Justice 2023 understating how much tax countries lose to global tax abuse a year by 1.7 per cent.
Regrettably, this means the global situation is even worse than we reported: countries are losing US$480 billion in tax a year to tax havens, which is US$8 billion more than the US$472 billion previously reported by the State of Tax Justice 2023
The ten jurisdictions2 in question, which include notable British tax havens Jersey, Guernsey and Gibraltar, were found by our report to have imposed a loss of US$10 billion in corporate taxes a year on other countries by facilitating profit shifting by multinational corporations. But this corporate tax loss was accidentally left out of the total sum of corporate tax losses reported by the State of Tax Justice 2023.
Adding the omitted US$10 billion corporate tax loss to the global tally increases the report’s estimate on how much tax countries around the world lose to cross-border corporate tax abuse from US$301 billion a year, as we initially reported, to US$311 billion a year – an increase of 3.7 per cent in total corporate tax losses than previously reported. The revision also implies very small changes for estimates for other countries as the pattern of global profit shifting is adjusted correspondingly – on average countries’ reported corporate tax losses increased by 1.4 per cent.
The missing data also led to a misdistribution of offshore wealth. The estimate on how much hidden wealth is held offshore (US$9.9 trillion) used in the State of Tax Justice report is based on a separate study commissioned by the European Commission and carried out by ECORYS. The State of Tax Justice uses a methodology established in academia to evaluate the distribution of this offshore wealth, that is, to determine where the hidden wealth held offshore originated from.
The unintentional exclusion of Jersey and Gibraltar from the analysis resulted in 1.9 per cent3 of the hidden offshore wealth that should have been reported as held in these two jurisdictions being reported as held elsewhere. This in turn impacted the analysis of where that small share of wealth had originated from.
Wealth hidden in one jurisdiction tends to come from a different pattern of countries than wealth hidden in another jurisdiction. The countries from which wealth hidden in Jersey and Gibraltar originated from tended to have lower tax rates, which meant slightly less tax was lost on this share of offshore wealth than previously reported.
The revised analysis now shows that US$169 billion in tax a year should have been collected on the US$9.9 trillion hidden offshore, instead of US$171 billion as previously reported – a difference of 1.5 per cent.
Summing up, the revised analysis following the coding correction finds that countries around the world lost $10 billion more in tax a year to multinational corporates shifting profit into tax havens than initially reported, and $2 billion less in tax a year to individuals hiding wealth offshore. Altogether, this means the world lost $480 billion in tax a year to tax havens instead of $472 billion a year as initially reported. Of this loss, US$311 billion was lost to corporate tax abuse (initially reported as US$301 billion), and US$169 billion was lost to offshore tax evasion (initially reported as US$171 billion). This increase in annual tax losses also increases the amount of tax the report predicts countries will lose to tax havens over the next decade from US$4.7 trillion to $4.8 trillion.
With the report’s estimate on global annual tax losses to tax havens increased to US$480 billion – just shy of the US$481 billion total loss reported in 2021 – the report’s assessment that no progress has been made on curbing global tax abuse over the past decade is even more poignant.
The State of Tax Justice reported additional figures for certain groupings of jurisdictions that included British dependencies Jersey, Guernsey and Gibraltar. The figures for these groups of jurisdictions have also been corrected to include the missing data for Jersey, Guernsey and Gibraltar:
- The tax losses imposed by the UK and its “second empire”, a network of British tax havens consisting of Crown Dependencies like Jersey and Overseas Territories like Cayman Islands, should have been stated as US$169 billion a year rather than US$157 billion a year. This means the UK and its second empire are responsible for 35 per cent, rather than 33 per cent, of global tax losses suffered by countries around the world.
- The tax losses imposed by the “axis of avoidance”, which consists of the UK and its “second empire” plus Luxembourg, Switzerland and the Netherlands, should have been stated as US$274 billion a year rather than US$263 billion a year. This means the “axis of avoidance” is responsible for 57 per cent, rather than 56 per cent, of global tax losses suffered by countries around the world.
- The tax losses imposed by the OECD members and their dependencies should have been stated as US$374 billion a year rather than US$365 billion a year. This means OECD members and their dependencies are responsible for 78 per cent, rather than 77 per cent, of global tax losses suffered by countries around the world.
Tax Justice Network chief executive Alex Cobham said:
“We regret this error, and I would like to apologise personally. The State of Tax Justice report is used by governments, researchers, campaigners and journalists around the world to help understand and act on global tax abuse. This is a responsibility we take very seriously. It is our long-standing policy to be transparent about our research, and that includes when we make an error. We have multiple checks within the research and publication process, but the occasional error is still of course possible. That’s why we think it is vital that we promptly and publicly correct any errors.
“We have rectified the code we use for our State of Tax Justice report, and we plan to publish our full code with a future edition of the State of Tax Justice report to help other researchers’ work and to increase our openness to review.”
Notes to editor
- The corrected State of Tax Justice 2023 report is available here. The old version of the State of Tax Justice 2023 report is still available here for reference.
- The ten jurisdictions for which data was omitted in the tally of global tax abuses are: Anguilla, Cook Islands, Guernsey, Gibraltar, Guadeloupe, French Guiana, Jersey, Saint Martin, Taiwan, Wallis and Fortuna. A table is provided below on the tax losses these jurisdictions suffer and inflict, which were unintentionally omitted from the report.
- 866 per cent of total hidden offshore wealth is estimated to be located in Jersey. 0.036 per cent is estimated to be in Gibraltar. This amounts to US$185 billion in Jersey and US$3.6 billion in Gibraltar.
|Corporate tax abuse||Offshore hidden wealth||Total tax abuse|
|Tax loss incurred (mil. USD)||Tax loss inflicted (mil. USD)||Tax loss incurred (mil. USD)||Tax loss inflicted (mil. USD)||Tax loss incurred (mil. USD)||Tax loss inflicted (mil. USD)|
|Wallis and Futuna Islands||0.0||–||5.4||–||0.0||–||0.0||–||0.0||–||5.4||–|