Quote of the day – tax incentives as official tax evasion

EuroparlThis headline may seem odd. Conventionally tax evasion involves cutting taxes by breaking laws; using tax incentives is a different creature altogether: it involves cutting taxes by using the law.

But this useful new report from the European parliament contains a twist on the conventional wisdom:

Tax incentives and exemptions are, under certain circumstances (nepotism, corruption, low transparency) ‘tax evasion with an official stamp on it’. Tax incentives can not only enable foreign firms to avoid taxation, but can give rise to domestic companies’ illegal tax evasion activities, by re-labelling domestic investments as FDI (‘round-tripping’) or selling businesses to subsidiaries disguised as new investors as a means to become eligible for tax holidays that are exclusively granted to new investors (‘double-dipping’).”

The bit in bold is our quote of the day.

The short report contains much that is useful: a concise and welcome critique of the international tax treaty system; public country-by-country reporting; public registries of beneficial owners; calls for impact assessments of European tax policies on developing countries (e.g. just one change to one country’s tax system is estimated to cost developing countries $4 billion per year); recommendations that the United Nations Tax Committee be beefed up; make gender analysis central to tax justice; and general recommendations for help for developing countries set up fair tax systems.

There are many sections we might single out: we’ll choose this one, for today:

Race to the bottom: In recent years governments of developing countries have continually lowered corporate tax rates, and have offered various tax incentives and exemptions with the aim of attracting investors and fostering economic growth. However, evidence shows that these incentives are not an important driver of foreign investment. Such practices therefore put economies against each other, competing to offer the most favourable tax treatment. This ‘race to the bottom’ brings greater benefit to MNCs than to developing countries.”

A quibble: that last sentence underplays the problem. It would be more accurate to say that this ‘race to the bottom harms developing countries.’

But despite the quibble, these recommendations could almost have been written by TJN: so familiar and welcome are they all. Some of them, we’ve been calling for for over a decade.

Hat tip: Christian Hallum


Related Posts

UN must defend target to curtail multinational companies’ tax abuse

Photo by Luca Santori, Creative Commons LicenseThe Tax Justice Network, The Independent Commission for the Reform of International Corporate Taxation, and the Global Alliance for Tax Justice call on the UN Secretary General to make sure the commitment to action on tax abuses by multinational companies remains part of the new UN Sustainable Development Goals.


The BVI: Responsible for worldwide tax losses of $37.5 billion a year

BVI report blogAn extraordinary report by consultants Capital Economics, for BVI Finance, claims that the British Virgin Islands are responsible for $1.5 trillion of assets invested around the world, and that these result in 2.2 million jobs and $15 billion in tax revenue. A better approximation would be that the BVI imposes global tax losses of $37.5 […]


Event: Making Tax Work for Women in the UK and Globally

Invitation_ Tax and Gender eventOn Wednesday 28th June 2017 at 16.30 our very own Liz Nelson will be speaking at an event in London that aims to bring together gender and tax justice advocates to highlight the need for coherent and gender-responsive fiscal policies to safeguard the rights of women and girls both in the UK and globally. The […]


Historic event on women, human rights and tax justice in Bogota

BogotaLast week civil society organisations, researchers, labour union activists and policy makers met in Bogota, Colombia to explore how tax justice issues can ensure governments, multinational corporations and others meet their obligations to women in order to secure their full range of human rights. The Women’s Rights and Tax Justice conference opened with a conversation […]


The Offshore Wrapper: the Panama Papers, one year on

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceWelcome to the Offshore Wrapper – your weekly update from TJN.  Happy Paniversary! This week it’s been one year since the Panama Papers were leaked, and a number of organisations around the world have been marking the occasion though the global week of action for tax justice. In London, activists from the TJN and the […]


Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top