UK territories blamed for bulk of global tax dodging

Pedro Gonçalves
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UK territories blamed for bulk of global tax dodging

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".

British territories and dependencies made up four of the top 10 countries on the Corporate Tax Haven Index

Crown dependency Jersey was seventh on the list behind the Netherlands, Switzerland and Luxembourg. Singapore, the Bahamas and Hong Kong are also in the top 10. Britain ranked 13th and the Isle of Man 17th.

"Britain has single-handedly done the most to break down the global corporate tax system, accounting for over a third of the world’s corporate tax avoidance risks.”

The index compares how aggressively 64 jurisdictions use tax cuts, loopholes and secrecy to attract multinational activity.

The research claims an estimated $500bn 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 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 network said Britain has "single-handedly done the most to break down the global corporate tax system, accounting for over a third of the world's corporate tax avoidance risks."

The top 10 countries that have done the most to proliferate corporate tax avoidance and break down the global corporate tax system are:

1. British Virgin Islands (British territory)
2. Bermuda (British territory)
3. Cayman Islands (British territory)
4. Netherlands
5. Switzerland
6. Luxembourg
7. Jersey (British dependency)
8. Singapore
9. Bahamas
10. Hong Kong

"These 10 jurisdictions alone are responsible for over half (52%) of the world's corporate tax avoidance risks as measured by the Corporate Tax Haven Index. Over two fifths of global foreign direct investment4 reported by the International Monetary Fund is booked in these 10 countries, where the lowest available corporate tax rates averaged 0.54%," the report said.

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.

While the UK itself ranks 13th on the index, the British Overseas Territories and Crown Dependencies dominate the top ten. TJN said the British corporate tax haven network is "by far the world's greatest enabler of corporate tax avoidance".

The report's methodology is under criticism, with Jersey Finance saying it confuses tax neutrality with tax avoidance.

"This Index appears to be based on rather subjective assessments, to confuse tax neutrality with tax avoidance and to ignore global standards. To be absolutely clear, independent research all points to the positive impact Jersey plays in enabling global capital to be put to work around the world, where it is needed most. Jersey provides a net tax benefit to the UK, for instance, of around £14bn a year, to the EU of €1bn, and facilitates foreign direct investment of some $13bn each year to support Greenfield site investment in a broad range of developed and developing countries - all whilst meeting and in some cases exceeding international standards of transparency and cooperation," Joe Moynihan, CEO of Jersey Finance said.

An editorial in the Cayman Compass said offshore centres are once again being used as "scapegoats".

Alex Cobham, chief executive at the Tax Justice Network, said governments' ability to tax multinational corporations to pay teachers' wages, build hospitals and ensure a level playing field for local businesses has been undermined.

"When our laws for taxing global corporations stop working, the global economy stops working for the vast majority of us," he said. "All around us we see inequalities go unaddressed, political extremism unchallenged and democratic institutions faltering - and the thread that runs through it all is a failure to defend progressive taxation.

"To curtail the corporate tax avoidance that costs hundreds of billions of dollars every year, governments must finally deliver international rules that ensure profits are declared, and tax paid, in the places where real economic activity takes place," Cobham added.

The UK is likely to face a general election before the end of this year, and if the Labour Party wins, Cayman and other territories could face even greater imposition.

"While Tory leadership hopefuls promise tax giveaways for the rich, a Labour government will implement the most comprehensive plan ever seen in the UK to tackle tax avoidance and evasion," Shadow Chancellor John McDonnell said following the release of the report.

 

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