Countries are losing a total of over $427 billion in tax each year to international corporate tax abuse and private tax evasion, costing countries altogether the equivalent of nearly 34 million nurses’ annual salaries every year – or one nurse’s annual salary every second. As pandemic-fatigued countries around the world struggle to cope with second and third waves of coronavirus, a ground-breaking study published today reveals for the first time how much public funding each country loses to global tax abuse and identifies the countries most responsible for others’ losses. In a series of joint national and regional launch events around the world, economists, unions and campaigners are urging governments to immediately enact long-delayed tax reform measures in order to clamp down on global tax abuse and reverse the inequalities and hardships exacerbated by tax losses.
The inaugural edition of the State of Tax Justice – an annual report by the Tax Justice Network on the state of global tax abuse and governments’ efforts to tackle it, published today together with global union federation Public Services International and the Global Alliance for Tax Justice – is the first study to measure thoroughly how much every country loses to both corporate tax abuse and private tax evasion, marking a giant leap forward in tax transparency.
While previous studies on the scale of global corporate tax abuse have had to contest with the fog of financial secrecy surrounding multinational corporations’ tax affairs, the State of Tax Justice analyses data that was self-reported by multinational corporations to tax authorities and recently published by the OECD, allowing the report authors to directly measure tax losses arising from observable corporate tax abuse. The data, referred to as country by country reporting data, is a transparency measure first proposed by the Tax Justice Network in 2003. After nearly two decades of campaigning, the data was made available to the public by the OECD in July 2020 – although only after multinational corporations’ data was aggregated and anonymised.
Of the $427 billion in tax lost each year globally to tax havens, the State of Tax Justice 2020 reports that $245 billion is directly lost to corporate tax abuse by multinational corporations and $182 billion to private tax evasion. Multinational corporations paid billions less in tax than they should have by shifting $1.38 trillion worth of profit out of the countries where they were generated and into tax havens, where corporate tax rates are extremely low or non-existent. Private tax evaders paid less tax than they should have by storing a total of over $10 trillion in financial assets offshore.
Poorer countries are hit harder by global tax abuse
While higher income countries lose more tax to global tax abuse, the State of Tax Justice 2020 shows that tax losses bear much greater consequences in lower income countries. Higher income countries altogether lose over $382 billion every year whereas lower income countries lose $45 billion. However, lower income countries’ tax losses are equivalent to nearly 52 per cent of their combined public health budgets, whereas higher income countries’ tax losses are equivalent to 8 per cent of their combined public health budgets. Similarly, lower income countries lose the equivalent of 5.8 per cent of the total tax revenue they typically collect a year to global tax abuse whereas higher income countries on average lose 2.5 per cent.
The same pattern of global inequality is also strongly visible when comparing regions in the global north and south. North America and Europe lose over $95 billion in tax and over $184 billion respectively, while Latin America and Africa lose over $43 billion and over $27 billion respectively. However, North America and Europe’s tax losses are equivalent to 5.7 per cent and 12.6 per cent of the regions’ public health budgets respectively, while Latin America and Africa’s tax losses are equivalent to 20.4 per cent and 52.5 per cent of the regions’ public health budgets respectively.
Rich countries are responsible for almost all global tax losses
Assessing which countries are most responsible for global tax abuse, the State of Tax Justice 2020 provides the strongest evidence to date that the greatest enablers of global tax abuse are the rich countries at the heart of the global economy and their dependencies – not the countries that appear on the EU’s highly politicised tax haven blacklist or the small palm-fringed islands of popular belief. Higher income countries are responsible for 98 per cent of countries’ tax losses, costing countries around the world over $419 billion in lost tax every year while lower income countries are responsible for just 2 per cent, costing countries over $8 billion in lost tax every year.
The five jurisdictions most responsible for countries’ tax losses are British Territory Cayman (responsible for 16.5 per cent of global tax losses, equal to over $70 billion), the UK (10 per cent; over $42 billion), the Netherlands (8.5 per cent; over $36 billion), Luxembourg (6.5 per cent; over $27 billion) and the US (5.53 per cent; over $23 billion).
G20 countries meeting tomorrow responsible for over a quarter or global tax losses
G20 member countries meeting this weekend for the Leaders’ Summit 2020 are collectively responsible for 26.7 per cent of global tax losses, costing countries over $114 billion in lost tax every year. The G20 countries themselves also lose over $290 billion each year.
In 2013, the G20 mandated the OECD to require collection of the country by country reporting data analysed by the State of Tax Justice 2020 – a measure the OECD had long resisted until then. In 2020, the OECD’s consultation on country by country reporting highlighted two major demands from investors, civil society and leading experts: that the technical standard be replaced with the far more robust Global Reporting Initiative standard, and – crucially – that the data be made public.
The Tax Justice Network is calling on the G20 heads of state summit this weekend to require the publication of individual multinationals’ country by country reporting, so that corporate tax abusers and the jurisdictions that facilitate them can be identified and held to account.
Alex Cobham, chief executive of the Tax Justice Network, said:
“A global tax system that loses over $427 billion a year is not a broken system, it’s a system programmed to fail. Under pressure from corporate giants and tax haven powers like the Netherlands and the UK’s network, our governments have programmed the global tax system to prioritise the desires of the wealthiest corporations and individuals over the needs of everybody else. The pandemic has exposed the grave cost of turning tax policy into a tool for indulging tax abusers instead of for protecting people’s wellbeing.
“Now more than ever we must reprogramme our global tax system to prioritise people’s health and livelihoods over the desires of those bent on not paying tax. We’re calling on governments to introduce an excess profit tax on large multinational corporations that have been short-changing countries for years, targeting those whose profits have soared during the pandemic while local businesses have been forced into lockdown. For the digital tech giants who claim to have our best interests at heart while having abused their way out of billions in tax, this can be their redemption tax. A wealth tax alongside this would ensure that those with the broadest shoulders contribute as they should at this critical time.”
Rosa Pavanelli, general secretary at Public Services International, said:
“The reason frontline health workers face missing PPE and brutal understaffing is because our governments spent decades pursuing austerity and privatisation while enabling corporate tax abuse. For many workers, seeing these same politicians now “clapping” for them is an insult. Growing public anger must be channelled into real action: making corporations and the mega rich finally pay their fair share to build back better public services.
“When tax departments are downsized and wages cut, corporations and billionaires find it even easier to swindle money away from our public services and into their offshore bank accounts. This is of course no accident; many politicians have wilfully sent the guards home. The only way to fund the long-term recovery is by making sure our tax authorities have the power and support they need to stop corporations and the mega rich from not paying their fair share. The wealth exists to keep our societies functioning, our vulnerable alive and our businesses afloat: we just need to stop it flowing offshore.
“Let’s be clear. The reason corporations and the mega rich abuse billions in taxes isn’t because they’re innovative. They do it because they know politicians will let them get away with it. Now that we’ve seen the brutal results, our leaders must stop the billions flowing out of public services and into offshore accounts, or risk fuelling cynicism and distrust in government.”
Dr Dereje Alemayehu, executive coordinator at the Global Alliance for Tax Justice, said:
“The State of Tax Justice 2020 captures global inequality in soberingly stark numbers. Lower income countries lose more than half what they spend on public health every year to tax havens – that’s enough to cover the annual salaries of nearly 18 million nurses every year. The OECD’s failure to deliver meaningful reforms to global tax rules in recent years, despite the repeated declaration of good will, makes it clear that the task was impossible for a club of rich countries. With today’s data showing that OECD countries are collectively responsible for nearly half of all global tax losses, the task was also clearly an inappropriate one for a club heavily mixed up in global tax havenry.
“We must establish a UN tax convention to usher in global tax reforms. Only by moving the process for setting global tax standards to the UN can we make sure that international tax governance is transparent and democratic and our global tax system genuinely fair and equitable, respecting the taxing rights of developing countries.”
Country cases of tax losses
- Tax abuse in Vietnam causes as much economic loss as Typhoon Molave
Typhoon Molave, described by Vietnamese Deputy Prime Minister Trinh Dinh Dung as “one of the two most powerful storms Vietnam has had in the past 20 years,” destroyed more than 700 houses and left 80 people dead and missing in October 2020. The Vietnamese government estimates Typhoon Molave to have caused $430 million in economic damage. Vietnam loses nearly as much tax, over $420 million (97 per cent of $430 billion), every year to global tax abuse.
- South Africa’s tax losses could lift over 3 million people out of poverty
Nearly half of South Africa’s adult population lives in poverty, with more women (52 per cent) in poverty, than men (46 per cent). The latest upper-bound poverty line published by the South African government in 2019 is ZAR 1,227 per month (almost $85 per month). If the $3.39 billion in tax that South Africa loses every year to tax abuse was instead given as direct cash transfers of $85 per month to people living in poverty, over 3 million people could be lifted out of poverty.
- Greece’s tax losses equal to over a quarter of scheduled debt repayments
Greece’s annual loss of nearly $1.36 billion in tax (€1.15 billion) to tax abuse is equivalent to over a quarter (27 per cent) of Greece’s scheduled debt repayments for 2020, which total €4.19 billion. Among the multiple debtors Greece owes, the country is specifically scheduled to repay €443.7m to Eurozone countries in 2020. Greece’s annual tax losses are over double this amount.
Responsibility for global tax losses
- The UK spider’s web is responsible for over a third of global tax losses
The jurisdiction that causes countries the most global tax losses is British Overseas Territory Cayman, which is responsible for other countries losing over $70 billion in tax every year. However, Cayman is just one jurisdiction that falls under UK’s network of Overseas Territories and Crown Dependencies, where the UK has full powers to impose or veto lawmaking and where power to appoint key government officials rests with the British Crown. Infamously referred to as the UK spider’s web, extensive research has documented the ways in which this network of jurisdictions operates as a web of tax havens facilitating corporate and private tax abuse, at the centre of which sits the City of London.
The State of Tax Justice 2020 finds that the UK spider’s web is responsible for 37.4 per cent of all tax losses suffered by countries around the world, costing countries over $160 billion in lost tax every year.
- The “axis of tax avoidance” is responsible for over half of the world’s tax losses
The Corporate Tax Haven Index 2019 had previously estimated that the UK, together with its network of Overseas Territories and Crown Dependencies, Luxembourg, Switzerland and the Netherlands are together responsible for half of the world’s risk of corporate tax abuse, coining the label “axis of tax avoidance” for the group. The Tax Justice Network revealed in April 2020 that the axis of tax avoidance costs the EU over $27 billion in lost tax every year solely from US multinational corporations operating in the EU.
The State of Tax Justice Network confirms today that the axis of tax avoidance is collectively responsible for over 47.6 per cent of global tax loss incurred from corporate tax abuse. When including tax losses to private tax evasion, the axis of tax avoidance is responsible for 55 per cent of all tax losses suffered by countries around the world, costing countries nearly $237 billion in lost tax every year.
- EU blacklisted jurisdictions cause less than 2% of global tax losses, EU member states cause 36%
Analysis of the jurisdictions on the EU tax haven blacklist found the cohort to be collectively responsible for just 1.72 per cent of global tax losses, costing countries over $7 billion in lost tax a year. In comparison, EU member states are responsible for 36 per cent of global tax losses, costing countries over $154 billion in lost tax every year.
The Tax Justice Network has long criticised the EU’s blacklist for ignoring major tax havens while focusing on jurisdictions that are secretive but play an insignificant role in the global economy. The State of Tax Justice 2020 reveals that two jurisdictions blacklisted by the EU, Palau and Trinidad and Tobago, while non-cooperative with international tax regulations, did not create any observable tax losses for other countries.
On the other hand, British Territory Cayman which was briefly blacklisted for the first time in February 2020 but removed from the list in October 2020 after it was deemed compliant with international tax rules, is responsible for the biggest share of countries’ tax losses (16.5 per cent of global tax losses, equal to over $70 billion a year). The Tax Justice Network argues that Cayman being deemed to be compliant with international tax rules despite being the world’s greatest enabler of global tax abuse is evidence that current international tax rules are not fit for purpose.
Three actions governments must take
The Tax Justice Network, Public Services International and the Global Alliance for Tax Justice, along with supporting NGOs, campaigners and experts around the world, are together calling on governments to take three actions to tackle global tax abuse:
- Introduce an excess profit tax on multinational corporations making excess profits during the pandemic, such as global digital companies, in order to cut through profit shifting abuses. Multinational corporations’ excess profit would be identified at the global level, not the national level, to prevent corporations from underreporting their profits by shifting them into tax havens, and taxed using a unitary tax method.
- Introduction of a wealth tax to fund the Covid-19 response and address the long term inequalities the pandemic has exacerbated, with punitive rates for opaquely owned offshore assets and a commitment between governments to eliminate this opacity. The pandemic has already seen an explosion in the asset values of the wealthy, even as unemployment has soared to record levels in many countries.
- Establish a UN tax convention to ensure a global and genuinely representative forum to set consistent, multilateral standards for corporate taxation, for the necessary tax cooperation between governments, and to deliver comprehensive, multilateral tax transparency.
