The Tax Justice Network has placed the British Virgin Islands, Bermuda and Cayman at the top of a list that the tax campaigners call “the 10 most corrosive tax havens in the world”.
The Corporate Tax Haven Index ranks countries by their “complicity in global corporate tax havenry”, the tax advocates say.
The Tax Justice Network blames the UK and its controlled network of satellite jurisdictions for aggressively undermining the ability of governments around the world to meaningfully tax multinational corporations.
The research claims an estimated $500 billion in corporate tax “is dodged” each year globally by multinational corporations. The top ten jurisdictions listed as corporate tax havens were allegedly responsible for more than half of the world’s “corporate tax avoidance risks” as measured by the index.
The 10 jurisdictions are the British Virgin Islands, Bermuda, the Cayman Islands, the Netherlands, Switzerland, Luxembourg, Jersey, Singapore, the Bahamas and Hong Kong.
The corporate tax havens had dealt the global corporate tax system a devastating double blow, the research claims, by rendering statutory corporate tax rates meaningless and triggering a race to the bottom that would further deplete tax revenues.
The Tax Justice Network is calling on governments to implement a unitary tax approach that would align the profits of multinationals with the location of their real economic activity.
Unitary taxation would treat multinationals as a single entity with a single set of worldwide consolidated accounts and then apportion the profits to various jurisdictions according to a weighted formula based on the economic presence in each country.
Alex Cobham, chief executive at the Tax Justice Network, said to curtail the corporate tax avoidance, governments must finally deliver international rules that ensure profits are declared, and tax paid, in the places where real economic activity takes place. “Corporations should be taxed where their employees work, not where their ledgers hide,” he said.
The organisation’s research does not mention the OECD Base Erosion and Profit Shifting initiative, which already had a significant effect on the ability of international companies to move profits to low-tax jurisdictions.
Nor did it take notice of the EU tax blacklist which forced the overseas territories and other offshore centres to introduce economic substance requirements to justify having corporate profits fall under the tax regime there.
It, however, attacked the UK as “the world’s greatest enabler of corporate tax avoidance” with “its corporate tax haven network”, saying the country had single-handedly done most of the damage to the global corporate tax system.
The UK together with the United Arab Emirates, France, Switzerland and the Netherlands also came under fire for their vast networks of double tax treaties, which reduce withholding tax rates in low income and lower middle income countries to a level that is lower than the one offered by high income countries.
This “double whammy” of corporate tax avoidance risks and reduced withholding rates made it difficult for low income countries to stop the flow of tax revenues from their economies, the tax advocates said.
It is a matter for debate how much of a problem corporate tax avoidance really is.
A recent report by tax campaigner Richard Murphy, a long-standing member of the Tax Justice Network, found that the main problem in Europe is not with corporate tax avoidance, but the much larger onshore tax evasion by individual taxpayers.
Murphy estimates in his January 2019 report ‘The European Tax Gap’ that domestic tax evasion on the continent is responsible for lost tax revenue of between €750 billion and €900 billion every year.
The tax gap from corporate tax avoidance, in contrast, is only between €50 billion and €190bn a year, according to European Parliament studies, cited in the report that was prepared for the Socialists and Democrats Group in the European Parliament.