Tax havens cost countries as much as climate losses and damages

“Double damage” inflicted by wealthiest corporations and individuals highlights twin crises of climate breakdown and inequality

The amount of tax lost every year to multinational corporations and wealthy individuals using tax havens is on par with the amount of money needed each year to cover the estimated cost of climate-induced loss and damage. In a statement published following the close of COP28, the Tax Justice Network highlights the “double damage” inflicted by the wealthiest corporations and individuals who disproportionately contribute to climate breakdown through their outsized carbon emissions and who rob governments of the funding needed to address the fallout from climate breakdown by abusing tax.¹

“At the heart of the twin crises of climate breakdown and runaway inequality is a catastrophic misuse of tax policy to prioritise the superrich over everybody and everything else. Governments can and must reprogramme our tax systems to protect the needs of all members of society, including the existential need to respect planetary boundaries,” said Franziska Mager, the Tax Justice Network’s senior researcher and advocacy lead on climate and inequality. (quote continued below)

The costs of “double damage”

Countries collectively lose US$480 billion in tax to tax havens a year due to profit shifting by multinational corporations and offshore tax evasion by wealthy individuals, according to research published in July this year by the Tax Justice Network. Countries will lose nearly US$5 trillion to tax haven over the next decade by staying the course, the research warns.²

Leading estimates on the annual cost of climate-induced loss and damage range from US$290 billion to US$580 billion.³ According to research modelling the economic loss and damage in developing countries reports, these damages range from range from US$116–435 billion per year in 2020 and will rise to US$290–580 billion in 2030.⁴ Research by Climate Analytics and commissioned by Oxfam reports projected macro-economic damage of climate change for developing countries to range from US$400–US$431bn per year by 2030.⁵

In an Oxfam report published last month, the richest 1 per cent of the world population were found to have emitted as much carbon pollution in 2019 as the 5 billion people who made up the poorest two-thirds of humanity. Oxfam argued that the climate breakdown crisis and the rising inequality crisis are not separate issues but are instead twin crises that are “interlaced, fused together and driving one another.”⁶

The US$480 billion in tax losses reported by the Tax Justice Network are direct losses to tax abuse that can be readily observed in data collected from multinational corporations and the banking sector. The IMF estimates that the indirect losses to tax abuse – ie knock-on revenue losses the follow direct losses – can be at least three times larger than direct losses.⁷

Governments agreed at the start of COP28 a Loss and Damage fund with initial funding close to US$700 million, which covers 0.2 per cent to 0.01 per cent of the estimated annual cost of loss and damage.⁸ Countries have started negotiations to agree New Collective Quantified Goals to enshrine the costs of Loss and Damage policies, as well as the longer lasting Adaptation and Mitigation expenses needed to prepare and protect for raising temperatures.

Taking back tax rules for a fighting chance on climate justice

Lower income countries have been locked out of decision-making on global tax rules for decades – for many, since independence. For over sixty years, a small club of rich countries at the OECD, including some of the world’s most harmful tax havens, have decided global tax rules behind closed doors for the rest of the world.

The OECD has received widespread criticism for global tax rules that prioritise its rich member countries, and fail to support – and at times undermine – lower income countries’ abilities to collect the tax revenues they urgently need, including the resources needed to finance the overwhelmingly expensive infrastructure needed to adapt to a rapidly warming world, and mitigate further damage.⁹

Countries at the UN adopted by a landslide majority last month a resolution to begin the process of establishing a framework convention on tax, and completely change how global tax rules are decided.¹⁰ The framework convention can eventually move decision-making on global tax rules from the OECD to the UN.

The historic success of the resolution, despite attempts by historic polluters – the US, UK and EU to block it, demonstrated the overwhelming demand from countries outside the OECD and disproportionately at risk of climate-induce loss and damage for the meaningful voice on global tax policy they have historically been denied.

Lower income countries are hit hardest by both barrels of the twin crises of climate breakdown and inequality. Lower income countries are most affected by climate breakdown and so have more urgency to raise the needed resources. At the same time, lower income countries are hit harder by tax abuse by multinational corporations and wealthy individuals as they are more reliant on collecting tax revenues to cover public spending.

While most annual tax losses to tax havens are suffered by higher income countries ($433 billion), these losses are equivalent to 9 per cent of higher income countries’ public health budgets. Lower incomes countries’ tax losses ($47 billion) are equivalent to half (49 per cent) of their public health budgets.¹¹

Franziska Mager, the Tax Justice Network’s senior researcher and advocacy lead on climate and inequality, said:

“For decades, governments have been told by lobbyists that tax policies must prioritise the super-rich over everybody else, over economies and planet.”

“The result is a planetary chokehold by extreme wealth that is accelerating climate collapse, escaping toothless tax laws and blocking action on climate and inequality.   

“Governments must listen to the writing on the wall and reprogramme our tax systems to protect the needs of all members of society, including the existential need to respect planetary boundaries.

“The world won a historic victory last month to take back power over tax policy by beginning the work at the UN to move decision-making on global tax rules away from the OECD, where tax havens and corporate lobbyists have had oversize influence for decades, to the UN, where rules must be decided democratically and transparently. We urge all countries to support this work.

“Giving all countries across the world a fighting chance to mitigate and deal with climate breakdown starts with adopting global tax rules that both eliminate tax abuse and fairly distribute tax revenues.”

-ENDS-

Notes to editor

1. We have also publishing a blog with reflections on COP28 here.
2. Read about the State of Tax Justice report here.
3. For a list of leading estimates on loss and damage, see Table 3 (page 18) in Oxfam’s briefing paper titled ‘Footing the Bill: Fair finance for loss and damage in an era of escalating climate impacts’.
4. Read the research by A. Markandya and M. González-Eguino here.
5. Read the research by Climate Analytics here.
6. Read about Oxfam’s report here.
7. See Section 4.1 of the State of Tax Justice 2023 report for more information.
8. More information on the agreed loss and damage fund available here.
9. The UN General Secretary published unusually blunt and comprehensive criticism in his reportthis summer on the “limited effectiveness” of the OECD’s rules and its lack of inclusivity. The EU parliament, in a resolution earlier this year that backed a legally-binding UN tax convention, reaffirmed global criticism that the OECD has not meaningfully include non-members in decision-making. Research by the BEPS Monitoring Group, published earlier this year, found the OECD’s proposals to be “fundamentally flawed”. A study by the South Centre and the Coalition for Dialogue with similar conclusions can be found here. A EU Tax Observatory report, which finds lower income countries would lose tax revenue under OECD proposals, can be found here. IMF research on the revenue returns to the OECD proposals supports findings by other bodies that the OECD proposal will make little to no impact on current levels of losses to cross-border tax abuse (see Figure 1 and Figure 5 on Pillar 1 and broader revenue impact here and a comparison of Pillar 1 with digital sales taxes for Asian countries here here). An account of how the OECD’s country by country reporting standard was watered down to keep corporate profit shifters anonymous is available here. An account of how the OECD’s global minimum tax rate was contorted to reward rather than restrain corporate tax havens is available here. An account of how the OECD’s pillar reform minimised the application and impact of unitary tax is available here.
10. Read more about the UN vote here.
11. See note 2.