Mark Bou Mansour ■ $427bn lost to tax havens every year: landmark study reveals countries’ losses and worst offenders
The equivalent of one nurse’s annual salary is lost to a tax haven every second
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.1 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.2
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 data3, 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.4
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.5 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.6 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.7
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 reforms8 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.9 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).10 The latest upper-bound poverty line published by the South African government in 2019 is ZAR 1,227 per month (almost $85 per month).11 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.12 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 web13, 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.14 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.15
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.16 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 criticised17 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 202018 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.19
- 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.
Contact the press team: [email protected] or +44 (0)7562 403078
The research will be presented at virtual event taking place from 1:00pm to 2:30 pm GMT on Friday 20 November 2020. The event will features speakers from around the world. Registration is available here.
Notes to Editor
- The tax losses of countries around the world are equivalent to nearly 34 million nurses’ annual salaries every year. Instead of a blanketly applying one country’s average annual nurse salary to the world, the global number of equivalent nurses’ salaries lost is arrived at by first calculating how much each country’s tax losses is equivalent to in local average annual nurse salaries in the country. Each country’s equivalent in nurses’ annual salaries is then summed to produce a global total the reflects nurses’ annual salaries around the world. Countries’ average annual nurse salaries are sourced from OECD data. For non-OECD countries, we use the average salary in the country, as reported by the International Labor Organization. Missing values in the OECD and ILO databases were calculated using the relation between the country’s average salary and GDP per capita found in other countries.
- A global virtual event launching the State of Tax Justice 2020 will take place at 1pm GMT on Friday 20 November 2020.
- Country by country reporting is designed to expose and deter profit shifting, a practice that involves multinational corporations moving profits from the countries where they were generated to tax havens, where corporate tax rates are low to non-existent, in order to underreport how much profit they made outside of tax havens and consequently pay less corporate tax. By requiring multinational corporations to publish how much profit they made and how much cost they incurred in each country in which they operate, public country by country reporting makes it impossible for corporations to shift profit into tax havens for the purpose of warping tax obligations elsewhere without being detected. This also exposes the cost of corporate tax havens’ aggressive tax policies to other countries.
- An international accounting standard for public country by country reporting was first proposed by the Tax Justice Network in 2003. Although initially resisted by the OECD the reporting method was eventually backed by the G20 group of countries in 2013, with the OECD producing a standard for use from 2015. After numerous delays, the OECD finally published partial data in July 2020. However, while the Tax Justice Network’s proposal called for multinational corporations to publicly disclose their country by country reports, the OECD required multinationals only to privately submit their reports to OECD countries’ tax authorities. Reports collected from multinational corporations were then aggregated and anonymised by OECD countries before the data was shared with the OECD body and published. As a result, while the Tax Justice Network’s analysis of the data published by the OECD shows that multinational corporations are paying $245 billion less in corporate tax than they should, it is not possible to identify which multinational corporations are responsible.
For countries that did not make country by country reporting data available, the State of Tax Justice uses information about the activity of multinational corporations within the non-reporting country from the data made available by other reporting countries. The more data coverage a country has – ie, the more countries whose country by country reporting cover a given, other country – the greater the accuracy of the estimates for the latter. Hence the importance of the transparency measure. As more countries get on board with country by country reporting in the coming years, the sharper the estimates will become.
- Countries’ annual tax loss estimates are calculated using data from the latest year available as of time of writing. Corporate tax abuse estimates are based on analysing the latest country by country reporting data from the OECD, which are for 2016. Private tax evasion estimates are based on analysing data on bank deposits from the Bank for International Settlements from 2018. These estimates are representative of the tax losses countries incur on an annual basis.
- The World Bank classifies countries on the basis of gross national income per capita as either low, lower middle, upper middle or high income. Roughly half the world’s population lives in the two lower income groups, and roughly half in the higher income groups. Accordingly, when referring to “higher income” countries in this press release and report, we refer to high income and upper middle income countries grouped together, and when referring to “lower income” countries, we refer to lower middle income and low income countries grouped together.
- More information is available here about the OECD consultation and the Global Reporting Initiative’s Tax Standard.
- The OECD’s blueprint for reforms published in October 2020 has been widely criticised by Joseph Stiglitz, Eva Joly, Jayati Ghosh and other leading economists and tax experts for failing to deliver meaningful reform. The Tax Justice Network criticised the OECD’s proposal for being a “tax haven lite” plan.
- Bloomberg: Vietnam Estimates Typhoon Molave Caused $430 Million of Damage
- Approximately half (49.2 per cent) of the adult population in South Africa were living below the upper-bound poverty line in 2015. According to the government survey, there were 35.1 million adults (aged 18 years and older) under the upper-bound poverty line. Adult females experienced higher levels of poverty when compared to their male counterparts.
- The South African government measures poverty by three threshold points. The upper-bound poverty line, the lower-bound poverty line and the food poverty line. The latest values for the poverty lines, among which upper-bound poverty line is the highest, were published by the South African government in 2019.
- For a list of Greece’s scheduled debt repayments, see here.
- Most of the UK’s Overseas Territories and Crown Dependencies ranked high on the Tax Justice Network’s Corporate Tax Haven Index in 2019, a ranking of how complicit countries’ legal and financial systems are in enabling global corporate tax abuse (see note 13 below). The Corporate Tax Haven Index previously estimated the UK and its network of Overseas Territories and Crown Dependencies to be collectively responsible for a third of the world’s risks for global corporate tax abuse.
While the index measured risks for corporate tax abuse, it could not directly measure corporate tax losses arising from those risks due to the difficulty in measuring corporate tax abuse prior to the publishing of country by country reporting data by the OECD this past summer.
The State of Tax Justice 2020 confirms that the UK spider’s web is responsible for 28.5 per cent of the tax losses countries incur from corporate tax abuse, in line with the index’s 2019 estimate. When including tax losses to private tax evasion, 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.
For more information about the UK spider’s web, please see Michael Oswald’s documentary “The Spider’s Web: Britain’s Second Empire”, produced by Tax Justice Network founder John Christensen. The documentary is available on YouTube in English, Spanish, French, German and Italian and has been viewed nearly 4 million times.
- The Corporate Tax Haven Index ranks countries by their complicity in global corporate tax havenry. The index scores each country’s legal, tax and financial system based on the degree to which it enables corporate tax abuse. Each country’s corporate tax haven score is then combined with the scale of corporate activity in the country to determine the share of global corporate activity put at risk of tax avoidance by the country. The greater the share of global corporate activity put at risk of corporate tax abuse by the country’s tax and financial system, the higher the country ranks on the index. The following 10 jurisdictions ranked highest on the latest edition of the Corporate Tax Haven Index published in 2019: 1. British Virgin Islands (British territory), 2. Bermuda (British territory), 3. Cayman Islands (British territory), 4. Netherlands, 5. Switzerland, 6. Luxembourg, 7. Jersey (British dependency), 8. Singapore, 9. Bahamas, 10. Hong Kong. For more information on the index and the axis of tax avoidance, see here.
- Analysis by the Tax Justice Network of country by country reporting data published in early 2020 by the US ahead of the OECD’s publishing of country by country data found that the axis of tax avoidance cost EU member states over $27 billion in lost corporate tax a year solely from US multinational corporations operating in the EU.
- Of the 12 jurisdictions on the EU tax haven blacklist, data was only available for 8 jurisdictions for the State of Tax Justice 2020 to analyse: Barbados, Fiji, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu, Seychelles. Due to the very small sizes of the economies of the four jurisdictions for which data is not available (American Samoa, Anguilla, Guam, US Virgin Islands), the absence of the jurisdictions from the analysis of the EU blacklist is not expected to have any material impact on the analysis.
- Analysis by the Tax Justice Network in 2018 found that the EU tax haven blacklist blocks just 1 per cent of financial secrecy services threatening EU economies.
- Analysis of the EU’s decision to blacklist British Overseas Territory Cayman in February 2020 is available here.
- Under the excess profit tax, each country where the multinational corporation operates would have the right to tax a share of the corporation’s global excess profits according to the country’s local corporate tax rates. The size of the share of excess profits that is apportioned to a country to tax would be based on the share of the multinational corporation’s workforce and sales based in the country. Meaning, countries where multinational corporations hire employees, run factories and offices, and sell goods and service – ie, where they genuinely do business – will have the right to tax a bigger share of the corporation’s excess profit at local corporate tax rates than countries where the corporation only exists as rented mailboxes for profit shifting purposes. This method of taxing global profit is known as unitary tax.
Tax losses by regions and income groups:
|Region or group||Total tax loss||Tax loss to corporate abuse||Tax loss to private abuse||Equivalent health budget||Equivalent nurses’ salaries|
|Higher income||$382,744,587,716||$202,166,248,454||$180,575,939,262||8.41%||16,289,176 nurses|
|Lower income||$45,021,135,653||$42,737,371,109||$2,282,856,942||52.36%||17,623,965 nurses|
|Caribbean/ American Isl.||$1,429,594,178||$642,376,849||$784,817,330||12.41%||182,632 nurses|
|Latin America||$43,111,038,773||$40,123,746,097||$2,987,292,676||20.41%||6,225,731 nurses|
|Northern America||$95,099,311,659||$52,551,805,288||$42,547,506,371||5.70%||1,252,972 nurses|
Tax losses inflicted on others by regions and income groups:
|Region||Total inflicted tax loss||Inflicted tax loss due to corporate abuse||Inflicted tax loss due to private abuse||Share of global tax loss responsible for|
Top 15 countries most responsible for global tax losses:
|Country||Tax loss inflicted on other countries||Tax loss inflicted by enabling corporate tax abuse||Tax loss inflicted by enabling private tax evasion||Share of global tax loss responsible for|
|British Virgin Islands||$16,295,774,429||$10,405,615,250||$5,890,159,180||3.81%|
About the Tax Justice Network
The Tax Justice Network believes a fair world, where everyone has the opportunities to lead a meaningful and fulfilling life, can only be built on a fair code of tax, where we each pitch in our fair share for the society we all want. Our tax systems, gripped by powerful corporations, have been programmed to prioritise the desires of the wealthiest corporations and individuals over the needs of everybody else. The Tax Justice Network is fighting to repair this injustice. Every day, we equip people and governments everywhere with the information and tools they need to reprogramme their tax systems to work for everyone.
About Public Services International
Public Services International is a Global Union Federation of more than 700 trade unions representing 30 million workers in 154 countries. We bring their voices to the UN, ILO, WHO and other regional and global organisations. We defend trade union and workers’ rights and fight for universal access to quality public services.
About the Global Alliance for Tax Justice
The Global Alliance for Tax Justice is a growing movement of civil society organisations and activists, united in campaigning for greater transparency, democratic oversight and redistribution of wealth in national and global tax systems. We comprise the five regional tax justice networks of Africa, Latin America, Asia, North America and Europe, which collectively represent hundreds of organisations.