How offshore investing has panned out globally
While this form of investing is perfectly legal, it has however garnered a reputation that is synonymous with the evasion of tax and tax havens. The latter means countries that provide the advantage of little or no tax liability to foreign investors. Some of these tax havens did not share financial information with tax authorities, and this made it hard to work out how much people who invested there were evading in taxes.
In 2016, The Panama Papers, which were 1.5-million files from the database of the world’s fourth-largest offshore law firm, Mossack Fonseca, were leaked. The leak showed various ways in which the rich can exploit secretive offshore tax regimes.
In every country, taxes are important because they make up most of the money that the government uses to run its affairs and provide service delivery. According to a report by the Tax Justice Network, 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.
The report measured “thoroughly” how much every country loses to both corporate tax abuse
and private tax evasion. Of the $427-billion in tax lost each year globally to tax havens, it also
showed that $245-billion is directly lost to corporate tax abuse by multinational corporations and $182-billion by private tax evasion. South Africa is no exception; the document revealed that the
the country loses $3.39-billion each year. Fortunately this year, the South African Revenue services said that “it is coming” for citizens who have their money abroad — and high-net-worth individuals who enjoy a “luxurious” lifestyle and demonstrate unexplained wealth when compared to their income.
The Organisation for Economic Co-operation and Development (OECD), which promotes trade and economic growth, said that since the G20 declared an end to bank secrecy in 2009, the international community has made strong and ongoing progress in the fight against offshore tax evasion. This was done through exchange of information which was requested, and through automatic exchange since 2017, it has implemented more than 6 000 bilateral relationships worldwide in 2019. This has resulted in the Swiss federal tax administration (FTA) in 2018 officially starting to exchange bank account data with tax authorities in other countries for the first time.
In 2007, Paolo Ciocca, chair of the OECD’S committee on fiscal affairs and co-chair of the Global Forum said: “No one country or even a small group of countries can address the issue of harmful tax practices on their own. This is a global challenge, which requires a global response. In co-operation with partner financial centres, that is what OECD is seeking to achieve.”
The OECD also said that lack of transparency and a failure to co-operate internationally create conditions that can be exploited by dishonest taxpayers to evade their tax obligations. Last year, the organisation’s secretary-general Angel Gurría said that “automatic exchange of
information is a game changer”, and that this system of multilateral exchange created by the OECD and managed by the Global Forum is providing countries around the world with “a wealth of new information, empowering their tax administrations to ensure that offshore accounts are being properly declared. Countries are going to raise much-needed revenue, especially critical now in light of the current Covid-19 crisis, while moving closer to a world where there is nowhere left to hide”.