The US has now become the world’s second-largest tax haven, behind Switzerland and just ahead of the Cayman Islands, according to the Tax Justice Network’s latest Financial Secrecy Index.
The US moved up to the second spot from third place in 2015, the last time the UK-based TJN carried out its research, as overseas money has poured in, fueled, some say, by the American government’s refusal to sign up to the OECD’s Common Reporting Standard. This means that money held in US banks and institutions will not automatically need to be reported to the account holder’s tax authorities, as it would if it were in one of the more than 100 countries that thus far have agreed to begin automatically exchanging tax-relevant account information this year and next.
Of the UK’s Crown Dependencies, Guernsey scored the highest, in tenth place; Jersey is in 18th position and the Isle of Man is 42nd.
Hong Kong is fourth, Singapore fifth, and Luxembourg sixth; Malta comes in at 20th, Liechtenstein at 46th, Mauritius at 49th and Gibraltar 83rd.
Panama, the jurisdiction in which the law firm at the centre of 2016’s Panama Papers tax avoidance expose was located, comes in 12th; Malaysia/Labuan is 31st, Monaco 92nd, China 28th and Russia 29th.
Taiwan was included in the ranking for the first time and comes in at No. 8.
(To see the full list on the TJN’s website, click here.)
Traditional stereotypes ‘misconceived’
One of the key takeaways from the latest secrecy index, the TJN noted, is that the traditional tax haven stereotype — the “small, palm-fringed islands” many associate with the term “tax haven” is a misconception. (It says it prefers the term secrecy jurisdictions to “tax havens” anway, because it stresses the secrecy element aspect that it says it uses to attract illicit and illegitimate or “abusive” funds.)
Rather, it notes, it is the “rich OECD member countries and their satellites” which are the main recipients of or conduits for the illicit flows of private wealth, which it says are thought to amount to $1trn to $1.6trn a year, and currently total an estimated “$21trn to $32trn”, held “in secrecy jurisdictions around the world”.
This fact, the TJN continues, carries “enormous” implications for global power politics, and helps to explain why, for so many years, international efforts to crack down on tax havens and financial secrecy were so ineffective”.
“It is the recipients of these gigantic inflows that set the rules of the game.”
‘Change is under way’
Still, the TJN points out that the situation has recently begun to improve – notably, it notes the OECD’s Common Reporting Standard, mentioned above.
“The global financial crisis and ensuing economic crisis, combined with recent activism and exposure of these problems by civil society actors and the media, and rising concerns about inequality in many countries, have created a set of political conditions unparalleled in history,” it notes.
“The world’s politicians have been forced to take notice of tax havens. For the first time since we first created our index in 2009, we can say that something of a sea change is under way.
“World leaders are now routinely talking about the scourges of financial secrecy and tax havens, and putting into place new mechanisms to tackle the problem.”
In the Common Reporting Standard, countries for the first time will be able to find out about the cross-border holdings of their taxpayers and criminals, the TJN says.
TJN warning to UK’s finance industry
In November, the Tax Justice Network issued a warning that the UK’s financial services industry “could face heavy penalties after Brexit unless the UK turns back on its aggressive tax haven policies”.
The TJN said it based its warning on research it carried out ahead of the UK’s plans to leave the European Union in 2019, and published ahead of the EU’s announced plans to publish a new, definitive “blacklist” of tax havens on 5 December.
Although the TJN said it found five other EU countries also potentially likely to end up on the EU blacklist, according to its research – which it said made use of the the EU’s own criteria for classifying jurisdictions as tax havens – it noted that the UK was particularly vulnerable because the EU “has stated that the list will only apply to non-EU member states”, and with the UK set to leave the bloc in 2019, “this could mean sanctions being applied to the UK, unless it changes course and ends policies which make [it] a tax haven”.
As reported, the European Council originally announced a “tax haven blacklist” consisting of 17 jurisdictions, but in January, removed eight of them, including Panama, following what it said were “commitments made at a high political level to remedy EU concerns” from the countries in question.
The eight countries – Barbados, Grenada, the Republic of Korea, Macao, Mongolia, Panama, Tunisia and the United Arab Emirates – were moved to a separate category of jurisdictions, as part of which they will be “subject to close monitoring”, the EC said.
To see a YouTube video of TJN chief executive Alex Cobham talking about the Financial Secrecy Index, click here.
To view a podcast in which TJN executives discuss the findings of their latest research, click here.