How cor­po­rates keep their hands clean

De­spite spec­tac­u­lar leaks of doc­u­ments de­tail­ing the scale of the use of tax havens in the past cou­ple of years, there ap­pears to be lit­tle will on the part of gov­ern­ments to crack down on the se­crecy they of­fer com­pa­nies, wealthy in­di­vid­u­als and crim­i­nal

Finweek English Edition - - Marketplace - By Mariam Isa

there is grow­ing con­cern at the toll which tax havens are tak­ing on economies, gov­ern­ment bud­gets and in­equal­ity world­wide as re­cent re­search shows they may con­ceal the equiv­a­lent of 10% of global out­put and nearly a third of the wealth of in­di­vid­u­als with a net worth of more than $45m.

The es­ti­mates may be con­ser­va­tive. At least 366 com­pa­nies in the Global For­tune 500 in­dex op­er­ate one or more sub­sidiaries in tax haven coun­tries, ac­cord­ing to a 2017 re­port by the In­sti­tute on Tax­a­tion and Eco­nomic Pol­icy, a Wash­ing­ton-based think tank.

The size of as­sets held in these tax havens could amount to more than $21tr. Anal­y­sis from re­searchers in Den­mark and the US showed that just 11 tax havens ab­sorbed $616bn in cor­po­rate prof­its last year alone, as com­pa­nies used le­gal loop­holes to move money away from more costly do­mes­tic tax regimes.

The im­pact of tax eva­sion is most se­vere on de­vel­op­ing coun­tries with wide­spread poverty. French econ­o­mist

Gabriel Zuc­man has calculated that 30% of the wealth in Africa is hid­den off­shore – which works out to about $14bn in lost tax rev­enues.

But de­spite spec­tac­u­lar leaks of doc­u­ments de­tail­ing the scale of the abuse, there ap­pears to be lit­tle will on the part of gov­ern­ments to crack down on the se­crecy they of­fer com­pa­nies, wealthy in­di­vid­u­als and crim­i­nals.

In De­cem­ber last year, soon af­ter the re­lease of the so-called “Par­adise Pa­pers”, the Euro­pean Union named and shamed 17 coun­tries in its first tax haven black­list and put

47 on no­tice. How­ever, mem­ber states failed to agree on sanc­tions for any of the of­fend­ers and international ad­vo­cacy group Tax

Jus­tice Net­work de­scribed the list as a “tooth­less white­wash”.

One of the is­sues which the

EU faces is that a num­ber of its own mem­bers – in­clud­ing Ire­land,

Malta, Cyprus, Lux­em­bourg and the Nether­lands – are also in­volved. None of them were black­listed and crit­ics pointed out that the bloc had only picked on smaller coun­tries.

The UK came un­der fire last year af­ter the re­lease of the Par­adise Pa­pers, a set of 13.4m con­fi­den­tial elec­tronic doc­u­ments orig­i­nat­ing from le­gal firm Ap­pleby, which were shared with the International Con­sor­tium of In­ves­tiga­tive Jour­nal­ists.

That leak, which fol­lowed the re­lease of the Panama Pa­pers in 2016, showed that the UK’s tax havens were be­ing used by fig­ures like the Queen and Don­ald Trump’s

com­merce sec­re­tary Wil­bur Ross. UK Prime Min­is­ter Theresa May said af­ter­wards that she wanted “greater trans­parency”, but would not com­mit to a pub­lic in­quiry or agree to open reg­is­ters for shell com­pa­nies and se­cre­tive fam­ily trusts.

There are dozens of tax havens world­wide and es­ti­mates of their rel­a­tive im­por­tance vary widely. The Fi­nan­cial Se­crecy In­dex com­piled by the Tax Jus­tice Net­work and re­leased in Jan­uary iden­ti­fied Switzer­land as the world’s big­gest tax haven, fol­lowed by the US and the Cay­man Is­lands.

Ac­cord­ing to Con­sul­tancy.uk anal­y­sis, Ire­land is the big­gest re­cip­i­ent of shifted cor­po­rate prof­its with $106bn, fol­lowed by the Caribbean with $97bn, Sin­ga­pore with $70bn, Switzer­land with $58bn and the Nether­lands with $57bn.

There is new ev­i­dence that tax havens may also be pro­tect­ing com­pa­nies that are dam­ag­ing the en­vi­ron­ment and con­tribut­ing to global warm­ing. Re­searchers from the Stock­holm Re­silience Cen­tre dis­cov­ered that more than two-thirds of the for­eign cap­i­tal in­vested in Brazil’s soy and beef sec­tors be­tween 2000 and 2011 – which are as­so­ci­ated with de­for­esta­tion of the Ama­zon – came from cor­po­rate sub­sidiaries in tax havens.

In their re­port, re­leased ear­lier this year, they also re­vealed that 70% of fish­ing ves­sels en­gaged in il­le­gal, un­re­ported or un­reg­u­lated ac­tiv­ity were reg­is­tered in tax havens.

An­a­lysts point out that mak­ing tax havens more trans­par­ent is an up­hill task be­cause of vested in­ter­ests.

The Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment – a group of mainly wealthy coun­tries – has es­tab­lished a new frame­work of au­to­matic in­for­ma­tion ex­change, but one mem­ber, the US, has re­fused to rou­tinely re­lease in­for­ma­tion of for­eign­ers with as­sets in the coun­try.

One of the chal­lenges is that for small coun­tries, be­com­ing a tax haven is a cheap and ef­fec­tive way of cre­at­ing a prof­itable in­dus­try which boosts eco­nomic de­vel­op­ment. Mau­ri­tius is one ex­am­ple – ac­cord­ing to es­ti­mates from the United Nations, $30bn to $60bn flows an­nu­ally from Africa to the is­land group, which has a tax rate of 15%, but ef­fec­tive tax rate of 3%.

Soon af­ter the re­lease of the

so-called “Par­adise Pa­pers”,

the Euro­pean Union named

and shamed 17 coun­tries in its

first tax haven black­list and

put 47 on no­tice.

Wil­bur Ross US sec­re­tary of com­merce

Gabriel Zuc­man French econ­o­mist

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