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 $427 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.
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.
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 squeezed the public services we all rely on to their breaking points, leaving our hospitals and nurses underequipped to handle the coronavirus pandemic.
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.
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.
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.
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 codes – ie 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.
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.
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.
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.
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 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.
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.
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.
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.
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 to use the Cool Shoes logo and brand. As a result, the shoe store is now no longer making a profit while the holding company in 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.
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.
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 make 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.
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.
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.
We need a UN convention on tax to hold countries to legally binding, equitable standards on corporate taxation, financial transparency and tax justice.
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 $427 billion in tax every year to corporate tax havens. 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.
1 nurses’ yearly salaries have been lost to tax havens since you started reading this page.
But it doesn’t have to be this way – the buck can stop here.
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