CORRECTION – 23 August 2023: Due to a coding error, some data on 10 small jurisdictions was left out of the report’s tally on tax losses arising from global tax abuse. These jurisdictions are Anguilla, Cook Islands, French Guiana, Gibraltar, Guadeloupe, Guernsey, Jersey, Saint Martin, Taiwan, Wallis and Fortuna. Adding the missing data to the report’s analysis increases the estimate on how much tax countries lose to tax havens a year by 1.7 per cent, from US$472 billion a year to US$480 billion. Estimates on tax losses suffered or inflicted by these 10 jurisdictions are mainly small in comparison to other countries. The exceptions are the British dependencies Gibraltar, Guernsey and Jersey. The figures in this press release have been updated to reflect the correction. More information on the correction is available here.
Countries are on course to lose nearly US$5 trillion in tax to multinational corporations and wealthy individuals using tax havens to underpay tax over the next 10 years, the Tax Justice Network warns. The future losses of public money would be equivalent to losing a year of worldwide spending on public health. Campaigners are urging countries to vote this winter in favour of beginning negotiations on a UN tax convention at the UN General Assembly to avert the astronomic losses.
“Countries have a choice to make at the UN this year end. Forfeit our future now by staying the course, or democratise global tax rules so we can hold on to the public money we need for the challenges ahead,” said Alex Cobham, chief executive at the Tax Justice Network.
The State of Tax Justice 2023 published today by the Tax Justice Network reports that countries around the world are losing US$480 billion in tax a year to global tax abuse.1 Of this annual loss, US$311 billion is lost to multinational corporations shifting profit into tax havens and US$169 billion is lost to wealthy individuals hiding wealth offshore.
Lower income countries, which have historically had little to no say on global tax rules, continue to be hit harder by global tax abuse. While most annual tax losses 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.
If countries stay the course followed for the past 10 years on international tax rules, countries will lose US$4.8 trillion over the next 10 years, the report estimates. In comparison, countries around the world collectively spent $4.66 trillion on public health in a single year.2
Comparing further, the 2007-2009 Great Recession is estimated to have led to a loss of US$2 trillion in global economic growth.3 Tax losses over the next 10 years would be twice the scale of the impact of the Great Recession on the global economy.
No progress made on global tax abuse over past decade
The 10-year projection is based on the impact of the OECD’s efforts since 2013 to reform international tax architecture and curb losses to global tax abuse. The OECD, a club of rich countries that has set global tax rules for the past sixty years, ran its first reform process, the BEPS process, from 2013 to 2015. The process failed to deliver a significant reduction in global tax abuse and necessitated a second reform process, BEPS 2.0, to begin shortly after, which has so far only produced drafts of policy proposals.
No significant reductions have been made in the amount of tax countries lose to global tax abuse since the start of the OECD’s efforts to reform global tax 10 years ago. Looking to the next 10 years, studies by several bodies, including the IMF and the BEPS Monitoring Group, conclude that the current draft proposals the OECD has prepared under BEPS 2.0 will make little to no impact on the scale of tax losses.4 Even then, it is widely expected that many OECD members will not implement the proposals.
The 10-year projection thus assumes global tax losses will not drop below current levels over the next decade under OECD leadership on global tax.5
The failure of the OECD process to curb global tax abuse is largely attributed to the inability of the body to agree policy solutions without its member countries, which are home to most multinational corporations’ headquarters, watering down the policies to redundancy. Most of the meaningful solutions that the OECD has attempted or is attempting to push through are based on the tax justice policy platform – eg country by country reporting, automatic exchange of financial account information, unitary taxation and a minimum effective tax rate. However, in all cases these policies have been rendered largely toothless under the pervasive influence of some OECD members who are also among the world’s biggest tax havens.6
OECD member countries, together with their territorial dependencies, are estimated to be responsible for over three-fourths (78 per cent) of the US$480 billion in tax losses countries suffer a year, according to the report.
Countries posed to vote for UN tax leadership
To avert astronomic tax losses over the next 10 years, and free up trillions of dollars to support the off-track Sustainable Development Goals, the Tax Justice Network is urging countries to support moving leadership on global tax from the OECD to the UN, where global membership, public transparency and the UN’s human rights legal frameworks and technical expertise can provide a more viable forum for securing effective tax solutions.7
Countries unanimously agreed at the UN last year to open the door to negotiations on a UN tax convention, which would move tax leadership to the UN.8 The historic resolution was adopted despite unprecedentedly aggressive attempts by the OECD to prevent the resolution from coming before the UN General Assembly.9 The UN Secretary General will present a report this September on possible options for a UN tax convention which the UN General Assembly will then debate. Countries are then expected to vote on a UN General Assembly resolution by the end of the year on whether to formally begin negotiations on a UN tax convention.
Robust, undiluted versions of tax justice policy solutions that the OECD has been unable to land have already been endorsed by the UN High-Level Panel on International Financial Accountability, Transparency and Integrity, and included in early proposed drafts for a possible UN tax convention.10
Regional bodies in Europe, Africa and Latin America recently announced or are preparing shortly to announce support for UN tax leadership.
The European Parliament recently backed negotiations on a UN tax convention.11 Support for a UN tax convention has been led by African countries for years. The historic resolution adopted at the UN last year on a UN tax convention was put forward by the Africa Group at the UN, and the influential African Union Commission reaffirmed that commitment to UN tax leadership earlier this month.12 Latin American and Caribbean nations are meeting at a first-of-its-kind regional summit13 this week to discuss international tax rules. The countries are expected to agree regional consensus and negotiation positions largely in favour of moving leadership on global tax to the UN.
Supporters of the UN tax convention have pointed to the OECD’s failure to deliver tangible progress on rampant global tax abuse as well as to the OECD’s failure to meaningfully include most countries in its rulemaking process – a criticism the European Parliament upheld in its backing of a UN tax convention.
Democratic revolution in global tax
The current lack of democratic process on global tax rules was put into sharp focus this month when the Financial Times confirmed14 that the OECD had intervened to deter Australia from adopting breakthrough measures on curbing tax abuse, and also confirmed15 that the IMF was using debt renegotiations to coerce countries to adopt OECD tax rules which the IMF’s own research16 shows will make it harder for fiscally stressed countries to collect tax.
Tax justice campaigners are hailing the potential shift to UN tax leadership as a “democratic revolution” in global tax.
Alex Cobham, chief executive at the Tax Justice Network, said:
“We’re on the cusp of a global democratic revolution in tax that could reclaim literally trillions of dollars in public money. For sixty years, global tax rules were decided behind closed doors at the OECD where a handful of countries and lobbyists saw tax policy as something to cater to the interests of the wealthiest corporations and billionaires. We now have a real shot at bringing this process into the daylight of democracy at the UN, where all countries will finally get a real say, and where governments will finally have to answer to their people on tax policy.
“The UN tax convention can trigger a more just economic era. The hold of multinational corporations and billionaires on global tax policy must be reined in by global democratic governance at the UN.”
Hon. Irene Ovonji-Odida, a panellist of the UN High Level Panel on International Financial Accountability, Transparency and Integrity, a member of the African Union/Economic Commission for Africa High Level Panel on Illicit Financial Flows out of Africa (the ‘Mbeki panel’) and chair of the Tax Justice Network board, writes in the report’s foreword:
“The negotiations at the UN offer a historic chance, for the first time, of a globally inclusive tax body. This could finally allow the less powerful individual states to protect themselves from cross-border tax abuse and set their own tax rules, finally having the space to exercise the full fiscal sovereignty that is the right of all states. And that would in turn allow all of us, and not just the uber wealthy and global corporations to benefit from the positive power of tax. With this all states – especially lower and middle income ones -could raise sufficient revenues for inclusive public services, to end the inequalities within and between countries that scar our societies, and to strengthen the bonds of political representation and government accountability.
“We must seize this moment, in every country and region of the world – because we all suffer the costs of tax abuse.”
Read the State of Tax Justice 2023 report
Notes to editor
- The State of Tax Justice 2023 report is available here.
- Countries’ public health expenditure is calculated in the report based on the World Health Organisation’s Domestic General Government Health Expenditure as percentage of Gross Domestic Product. The latter is based on World Bank data, and for countries for which this data is not available, UN data and, if needed, US Central Intelligence Agency data is used.
- Moody’s Analytics calculates that the Great Recession led to a loss of more than $2 trillion in global economic growth, or a drop of nearly 4 percent, between the pre-recession peak in the second quarter of 2008 and the low hit in the first quarter of 2009.
- IMF research on the revenue returns to the OECD proposals can be found here(see Figure 1 and Figure 5 on Pillar 1 and broader revenue impact), and here (a comparison of Pillar 1 with digital sales taxes for Asian countries). Research by the BEPS Monitoring Group, published earlier this month, 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.
- This is a conservative estimate. Future tax loss may likely be higher in practice than projected due to, among other reasons, trends in rising profit and wealth among the wealthiest multinational corporations and individuals. See page 20 of the report for more information.
- 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.
- Read more about the historic UN resolution here.
- The UN has a rich history of establishing and overseeing some of the most impactful specialist agencies, trade agreements and conventions that deal with highly complex, technical issues. Examples include: he UN’s DESA secretariat for sustainable development goals; United Nations Conference on Trade and Development; The International Trade Centre, a joint agency of the World Trade Organisation and UNCTAD; the United Nations Industrial Development Organisation; the Trade Facilitation Agreement; the Uruguay Round (1986-1994) and the General Agreement on Tariffs and Trade, which led to the creation of the World Trade Organisation.
- The OECD was reported to have used unprecedented language in letters to ambassadors to question the UN’s fitness to oversee international tax discussions. Sources told the Tax Justice Network that the move has backfired in some quarters as it was seen as “undiplomatic” and “highly unusual” to attack another international institution in this way, and may actually have bolstered support for the UN resolution. The letters the OECD sent to ambassadors have been discussed with the Tax Justice Network by multiple people who have seen them. The OECD did not respond to media requests at the time to make the letters public.
- See the UN High Level FACTI panels report here. See a draft UN tax convention here.
- More information on the European Parliament backing a UN tax convention is available here.
- Watch the statement by the African Union Commissions’ acting head of division for economic policy here.
- Read more about the Latin American summit here.
- The Financial Times confirmed this month that the OECD heavily lobbied to stop Australia from passing legislation that would have delivered the biggest transparency breakthrough to date on the taxes of multinational corporations. The legislation would have required 1 in 5 multinational corporations around the world to publish country by country reports, including the world’s biggest household names. Reports of OECD lobbying were first brought to light by CICTAR and the Tax Justice Network. The OECD issued a statement in response to the Financial Times article. See the Tax Justice Network’s response exposing inaccuracies in the OECD’s statement here.
- See the Financial Times reporting on the IMF using debt renegotiations to pressure Sri Lanka to adopt OECD tax rules here. Renowned economists Joseph Stiglitz, Jayati Ghosh, Gabriel Zucman and other commissioners of ICRICT published an open letter condemning the IMF’s actions as “alarming” and “unacceptable.
- See note 4.