TAKING BACK CONTROL OF OUR TAX SYSTEMS A visual report by the Tax Justice Network

Our tax systems have been taken over

Every second, the world loses the equivalent of one nurse’s yearly salary to a tax haven.

A year from now, our governments will have lost over $483 billion in tax to cross-border corporate tax abuse and private tax evasion. The Tax Justice Network is working to repair this injustice and the inequality it fuels.

Corporate giants and the superrich have made historic levels of inequality possible by taking over the tax systems of countries around the world, turning tax policy into a tool that prioritises the interests of the wealthiest instead of the needs of all members of society.

It’s time we took back control.
It’s time we reprogramme our tax systems to work for all of us.

Reprogramming our tax systems
TO PRIORITISE EQUALITY

Our tax systems are like computer programmes that are constantly being revised and updated.

Over the past few decades, the lines of code that determine how our tax systems run have been dictated to our governments by corporate giants chasing their own interests, while most of the public have been left out of the decision making process.

Reference: Saez, E. and Zucman, G., The Triumph of Injustice (W.W. Norton, 2019)

Under pressure from corporate giants and the superrich, our governments have cut taxes on the wealthiest corporations and individuals to record lows at a time of record wealth.

For the first time, in 2018, US billionaires paid less tax than their secretaries.

Our governments stalled efforts to clamp down on tax abuse and tax havens costing countries billions in lost public funding.

Data from: World Health Organisation, Pulse survey on continuity of essential health services during the COVID-19 pandemic: Interim Report, August 2020, p. 5.

Our governments squeezed the public services we all rely on to their breaking points, leaving our hospitals and nurses underequipped to handle the coronavirus pandemic.

Reference: Oxfam, Time to care: Unpaid and underpaid care work and the global inequality crisis, January 2020, p. 22.

As a result of programming our tax systems to ask the least from those with the very most, and to ask for more from the rest of the public for a lot less in return, inequality has skyrocketed and the opportunities that make a good life possible for everyone have rapidly dried up.

Reference: Oxfam, Time to care: Unpaid and underpaid care work and the global inequality crisis, January 2020, p. 14.

As a good life continues to move further out of the reach of more and more people, it moves even further for those who have systematically had less opportunities to begin with, including women, people of colour and disabled people.

reprogramme

We must reprogramme our tax systems to prioritise equality over the desires of the wealthiest.

That means taking back control from corporate giants and the superrich and reprogramming our tax systems to give equal weight to the needs of all members of society, instead of giving preferential treatment to those at the very top.

As we set out to build a new normal in the aftermath of the coronavirus pandemic, we can and must rewrite the rules and policies on which our tax systems run to make sure corporations pay the right amount of tax for the profit they extract from people’s work, to make sure the wealthiest come clean about their hidden fortunes and to put public money towards the services and society we all want.

How we’re helping people
take back control

Every day, we equip people and governments around the world with the information and tools they need to reprogramme their tax systems to run on equality.

The Tax Justice Network researches the malicious lines of code – the laws, policies and loopholes – that cause tax systems to prioritise the desires of corporate giants and the superrich at the expense of everybody else, assessing their impacts on people’s lives and countries’ economies so that governments can make informed decisions about cutting them out.

We develop alternative, equality-focused tax policies for our tax systems to run on, helping governments use tax policy as a tool for giving everyone access to the opportunities that make a good life possible.

We work with an international network of ally organisations and partners spanning across
5 continents and 60 countries to support people, campaigners and policymakers take back control at a local and global level.

We also help people cut through the confusion around how our tax systems work and encourage people to rethink the role that tax plays and can play in their lives. Our documentaries, podcasts and articles reach millions of viewers and readers across the globe, helping people to reimagine tax as a tool for justice.

Six ways to reprogramme
our tax systems

Since the Tax Justice Network got started in the early 2000s, we have developed and helped usher in several ground-breaking, equality-focused tax policies that were once considered impossible to implement. It’s become a lot harder today for corporate giants to abuse the law to pay less tax than they should, for corrupt individuals to launder dirty money and for the wealthiest to hide unchecked wealth in tax havens.

But we still have a long way to go to taking back control of our tax systems.

These are the six key solutions we’re campaigning for that governments around the world can adopt domestically and internationally to reprogramme their tax systems to prioritise equality.

1Automatic exchange of information

Automatic exchange of information is a data sharing practice that prevents individuals from abusing bank accounts they hold abroad to pay less tax than they should at home.

Solution 1: Automatic exchange of information

Ana is a resident of Brazil – she has a home in Rio de Janeiro where she lives for most of the year. Ana also has a bank account in Luxembourg where she transfers large sums of wealth she acquires from her financial dealings in Brazil. Without information about the foreign bank account, Brazil’s tax authority has no way of knowing if Ana is using the bank account to hide the true value of her wealth and to pay less tax than she should in Brazil.

Brazil’s tax authority can ask Ana to disclose information about the bank account but it won’t know if Ana is telling the truth. Up until recently, Brazil would have had to request information about Ana’s bank account from Luxembourg, a process that could sometimes be slow, costly and politically sensitive. Luxembourg could refuse to share information or by the time it shares the information, Ana could have moved her wealth to a new bank account in the Netherlands.

Under automatic exchange of information, Luxembourg automatically shares information with Brazil about Ana’s bank account on a regular basis, helping Brazil know the true value of Ana’s wealth and make sure Ana pays the right amount of tax.

2005
Tax Justice Network puts automatic exchange of information on the global agenda for the first time to much scepticism
2010
Amendment to Multilateral Tax Convention opens convention to exchange information “upon request” to non-OECD countries
2014
Countries commit to OECD’s Common Reporting Standard, finally making automatic exchange of information a reality
2019
Nearly 100 countries are automatically exchanging information on over 85 million accounts worth $11 trillion

US must urgently end its refusal to cooperate, and join the Common Reporting Standard along with all remaining financial centres
Lower income countries should be fully included by being able to receive information, without immediately requiring reciprocity
Robustness of information improved to better tackle tax abuse

2Beneficial ownership registration

A beneficial owner is the real person, made of flesh and blood, who ultimately owns, controls or receives profits from a company or legal vehicle, even when the company, on paper, legally belongs to another person, like an accountant or a shell company.

Companies, trusts, foundations and partnerships must typically register the identities of their legal owners, but not necessarily their beneficial owners. In most cases, a company’s legal owner and beneficial owner are the same person but when they’re not, it can be almost impossible to tell who is truly running and profiting from a company, and whether they’re abiding by the law and paying the right amount of tax.

Solution 2: Beneficial ownership registration

Liam hires an accountant to incorporate a café company on his behalf in Canada. As part of the financial services the accountant provides, the accountant lists herself as the company’s legal owner when filing the paperwork, taking on the formalities and reporting duties on Liam’s behalf. Meanwhile, Liam continues to run the cafe and shifts its profits offshore to a bank account he indirectly owns in the Cayman Islands, all without being made known to Canada’s tax authority and without paying the right amount of tax on the profit going offshore.

Next, Liam sets up another café company on the same street as his first cafe using a similar arrangement with the accountant that keeps his identity hidden. On the surface, the two separate companies look like competitors, but Liam directs both cafes to raise their prices. Without knowing who the real beneficial owners of the two companies are, Canada’s tax authority has no idea that Liam is violating competition laws.

By requiring beneficial owners to be registered just like legal owners, beneficial ownership registration laws make sure individuals cannot hide behind convoluted corporate structures to avoid accountability and underpay tax.

Mossack Fonseca, the offshore service provider at the centre of the Panama Papers scandal on which the Netflix drama “The Laundromat” is based, did not know who the beneficial owners were of more than 70 per cent of the 28,500 active companies it provided services to, despite serving as the legal owner of some of those companies.

2005
Tax Justice Network calls for beneficial ownership registration in key report
2012
Financial Action Task Force updates anti-money laundering recommendations to expand on beneficial ownership
2015
4th EU Anti-Money Laundering Directive requires EU countries to establish beneficial ownership registers
2016
UK establishes world’s first beneficial ownership register
2018
5th EU Anti-Money Laundering Directive requires EU countries to give public access to beneficial ownership registers
2020
81 countries have established beneficial ownership registers

All countries must establish publicly available online beneficial ownership registers otherwise tax abusers will always have someplace to hide
Registers must be made more effective by expanding registers to cover all legal vehicles (including trusts) and improve criteria for registration
Verifications systems need to be improved to guarantee the accuracy of registered information

3Country by country reporting

Public country by country reporting is an accounting practice designed to expose multinational corporations that are shifting profit into tax havens so that they can pay less tax than they should.

Solution 3: Country by country reporting

Cool Shoes is a multinational corporation with a shoe store in France and a holding company in Ireland. The holding company only exists on paper – the only physical presence it has in Ireland is a mailbox that Cool Shoes rents. Cool Shoes makes the holding company the owner of its Cool Shoes brand.

The shoe store makes €100 in profit selling shoes in France. The holding company then charges the shoe store €100 in royalty fees for using the Cool Shoes logo and brand. As a result, the shoe store is now no longer making a profit while the holding company has a profit of €100.

In France, Cool Shoes only reports that its shoe store made no profit to the French tax authority, leaving out information about its holding company’s profit. As a result, Cool Shoes does not pay corporate tax in France because it appears to have not made any profit. In Ireland, Cool Shoes only reports the holding company’s profit to the Irish tax authority but pays no tax due to Ireland’s corporate tax exemptions. Cool Shoes reports on its website that it made a total of €100 in profit globally and has paid the right amount of tax where it is due – in this case zero tax.

Without information about the holding company’s financial accounts, France’s tax authority has no way of knowing that Cool Shoes is abusing its holding company in Ireland to shift profit out of France before reporting to the French tax authority.

Public country by country reporting requires multinational corporations to publish how much profit and cost they build up in each country they operate in, giving tax authorities and the public a full picture of multinational corporations’ financial affairs, and making it easy to see when corporations are cooking the books to pay less tax than they should.

2003
Tax Justice Network proposes world’s first standard for public country by country reporting
2015
After years of resistance, the OECD adopts a watered-down version of country by country reporting in its BEPS framework, making the process a global standard for the first time
2018
Vodafone becomes first global company to voluntarily publish country by country reporting data
2019
Global business standard setter GRI establishes its first standard for public country by country reporting with support from global investors, civil society and tax experts
2020
After much delay, the OECD publishes the first set of country by country reporting data collected by its members, revealing $1.3 trillion in profit is shifted into tax havens every year, resulting in $245 billion corporate tax lost every year
2021
EU agrees to require publication of country by country reporting data for each member state from 2023 – but not yet for every country
2021
US Congress passes act requiring publication of country by country reporting data. Senate approval, or SEC action, is needed next

Countries must move beyond the OECD’s watered-down standard and adopt public country by country reporting laws that meet the GRI’s more robust standard

4Unitary taxation

Unitary taxation is a way of taxing multinational corporations based on where they do real work – ie, employ staff, operate factories, sell goods and services - instead of where they formally declare their profits – ie, tax havens.

Solution 4: Unitary taxation

Big Cigarette is a multinational corporation with a manufacturing company in Bangladesh, a sales company in Kenya and a head company in Jersey. The manufacturing company in Bangladesh employs 5 people and makes cigarettes which are sent to Kenya. The sales company in Kenya employs 4 people and sells the cigarettes to local shop vendors. The sales company in Kenya then shifts its profits to the head company in Jersey which employs 1 person. The companies in Bangladesh and Kenya both declare they have made no profits while the company in Jersey declares it has made $100 in profit.

Under current global tax rules, Big Cigarette does not pay tax on the profit it makes as a group of three companies. Instead each of Big Cigarette’s companies pays tax separately. The Bangladeshi and Kenyan companies declared no profit, so they don’t pay tax. The corporate tax rate in Jersey is zero so the head company pays no tax on the $100 profit it declared. Big Cigarette reports on its website that it made a total of $100 in profit globally and has paid the right amount of tax where it is due – in this case zero tax.

Under unitary tax rules, Big Cigarette would be required to pay tax on the profit it makes as a group of companies. Each country Big Cigarette operates in would have the right to tax a share of the $100 in profit that Big Cigarette made as a group. The size of each country’s share of the $100 would be based on how much genuine business activity Big Cigarette conducted in the country. In this simplified example, since half of Big Cigarette’s workforce (5 employees) is based in Bangladesh, Bangladesh would have the right to tax half of Big Cigarette’s profit ($50) at the local corporate tax rate of 25 per cent. Big Cigarette pays $12.50 in tax in Bangladesh. Forty per cent of Big Cigarette’s workforce is based in Kenya, so forty percent of Big Cigarette’s profit ($40) is taxed in Kenya at the local corporate tax of 30 per cent. Big Cigarette pays $12 in tax in Kenya. Big Cigarette employs just 1 person in Jersey, or 10 per cent of its workforce, so just 10 per cent of Big Cigarette’s profit ($10) is taxed in Jersey at the local corporate tax rate of zero. Big Cigarette pays no tax in Jersey. Big Cigarette has now paid a total of $24.50 in tax on its $100 global profits.

By requiring multinational corporations to pay tax where they employ staff and do real work, instead of where they hide profits, unitary tax reprogrammes our tax systems to give recognition to every person involved in the process of creating wealth, not just those who syphon wealth at the top.

2000
Members of what would later become the Tax Justice Network first called for unitary tax in an Oxfam study published in 2000
2011
The EU proposes the Common Corporate Consolidated Tax Base which would switch the EU to unitary tax – but the proposal is stalled by Ireland and the UK
2019
The OECD adopts a shift to unitary tax in its reform proposals, albeit in very weak form
2019
UK’s Labour party becomes the first major political party in the global north to commit to unitary tax in a party manifesto

2021
European Commission brings forward ‘BEFIT’ as relaunched proposal for a Common Consolidated Corporate Tax Base, which would introduce unitary taxation across the bloc
2021
A unitary approach is agreed by the G20 to be implemented internationally for the first time, but in a very limited and unfair way
Countries must move beyond the OECD’s Pillar 1 to implement unitary tax universally and fairly based on employment and sales
Global standards for unitary tax must be established under a UN tax convention

5Equip tax collectors to do their jobs

We must equip our national tax authority workers with the resources they need to make sure the wealthiest and most powerful corporations and individuals pay the right amount of tax, like everybody else.

Solution 5: Equip tax collectors to do their jobs

National tax agencies are our last line of defence against corporate tax abuse and private tax evasion. But for decades governments have been cutting national tax authority staff’s wages, stripping them of resources and downsizing their departments.

This hasn’t just resulted in weaker national tax bodies. In some cases, highly talented and experienced tax experts cut from national tax authorities go on to work for multinational corporations, helping them circumvent the tax laws they worked to protect in the public interest for so long.

Governments must make sure national tax authority staff are sufficiently paid to retain the best talent, and are trained and supported to enforce the laws the make sure everybody pitches in their fair share.

2011
Tax Justice Network founder John Christen proposes establishing ‘Tax Inspectors Without Borders’, an initiative for strengthening national tax agencies in poorer countries
2015
Tax Inspectors Without Borders is launched as a UN Development Programme and OECD joint project, with the Tax Justice Network involved in piloting of first phase
2018
13 Tax Inspectors Without Borders programmes raise $400 million in tax revenue. Every $1 spent on the project raised $100 in revenue.
2020
Tax Justice Network supports tax office workers in the UK protesting against the closure of the Ealing tax office
2021
Funding cuts to national tax authorities are reversed; empowering tax authorities recognised by governments as vital for protecting the economy and people's wellbeing
2021
Tax Justice Network is collaborating with tax authorities and other agencies in a number of European and African countries to strengthen their capacity to challenge illicit financial flows

National tax authority staff are better paid and supported with resources needed to make sure wealthy and powerful multinational corporations are abiding by the law
National tax authority staff equipped with data analytical tools for utilising transparency data made available by automatic exchange of information, beneficial ownership registration and country by country reporting

6UN tax convention

We need a UN convention on tax to hold countries to legally binding, equitable standards on corporate taxation, financial transparency and tax justice.

Solution 6: UN tax convention

UN conventions, like the Convention on the Rights of the Child and the Convention against Torture, are international treaties to which countries can sign up and ratify to become bound to the treaty’s provisions by international law.

For most of the past 100 years, international tax rules have been primarily determined by the OECD, a small club of rich countries among which are some of the world’s biggest tax havens. This has brought about a global tax system that causes countries around the world to lose over $483 billion in tax every year. Analysis shows that OECD countries are responsible for enabling nearly half of these tax losses. While the OECD has acknowledged that current international tax rules are not working, its recent efforts to deliver meaningful reform have failed under pressure from powerful member countries.

Establishing a UN tax convention would allow international tax rules to be determined through a genuinely representative process at the UN that reflects the needs of countries around the world, instead of the desires of a rich and powerful few.

2005
The Tax Justice Network proposes a set of international tax responsibilities to rest with the UN, which would be reflected in later proposals for a convention
2018
The UN Commission on the Status of Women officially recognises the link between tax policy and gender justice
2018
UNCTAD and the UN Economic Commission for Africa pilot new indicators for the Sustainable Development Goals that seek to tackle profit shifting by multinational corporations and illicit money transfers by individuals
2020
Following evidence submitted by Tax Justice Network and others, UN begins examining whether Ireland’s tax policy violates the Convention on the Rights of the Child by enabling corporate tax abuse in other countries
2021
UN FACT panel calls for new UN role on international tax and endorses the tax justice policy platform
A UN tax convention must be established to deliver globally inclusive decision-making on tax, including through an intergovernmental UN body; comprehensive participation in the ABC of tax transparency; and a Centre for Monitoring Taxing Rights to raise national accountability for tax abuse suffered by others