Tax Havens! What’s the Solution?

by Hank Pellissier

I’ve recently been digesting infuriating facts about tax havens from this 83-page pdf by Global Alliance for Tax Justice. Three of the most disgusting details are:

1. Tax Justice Network estimates $500 billion in tax is avoided by multinational corporations annually. International Monetary Fund says the figure is $600 billion. Approximately 10% of the world’s GDP is hiding in tax havens. What’s the result?

2. “Almost every person in almost every country in the world foots the bill incurred by tax abusers. People suffer needlessly poor public services, needlessly deep inequalities, needlessly high rates of death, needlessly weak and corrupt governments… Only tax abusers and the very wealthy in tax havens win, at the cost of everyone else.” [source]

3. What nations enable this sordid activity? “higher income countries are responsible for facilitating 98% of all global tax losses, while lower income countries are responsible for less than 2%” [source]

GRRRR! Alex Cobham, chief executive at Tax Justice Network, says:

“A handful of the richest countries have waged a world tax war so corrosive… [they] line their own pockets at the expense of a crucial funding stream for sustainable human progress. The ability of governments across the world to … pay teachers’ wages, build hospitals, and ensure a level playing field for local businesses has been deliberately and ruthlessly undermined.”

A tax haven, defined by investopedia.com, is “generally an offshore country that offers foreign individuals and businesses little or no tax liability…[they] also share limited or no financial information with foreign tax authorities [and] do not typically require residency...”

How many corporations use tax havens, to hoard their billions and cheat the public?

The Institute on Taxation and Economic Policy claims at least 366 companies in the Fortune 500 base at least one subsidiary in a tax haven. The worst offender, it claims, is Apple; it has hidden $246 billion offshore, avoiding $76.7 billion in taxes. Microsoft, Alphabet, Cisco, and Oracle are also deceptive high-tech companies. Goldman Sachs, JPMorgan Chase, and Viacom hide in The Bahamas; Nabors Industries, Signet Jewelers, and Nike shelter in Bermuda; over 400,000 companies with $1.5 trillion in assets hide in the British Virgin Islands (population >36,000), with even more - $2.0 trillion - hiding in the Cayman Islands. Additional culprits include IBM, General Electric, and Exxon. The 50 biggest tax evaders, reports the Corporate Finance Institute, hid $1.6 trillion offshore, securing lower tax rates.

Tiny islands aren’t the only countries enabling tax evaders. Switzerland, with its low tax rate (8.5%) and secrecy, has 35% of Fortune 500 companies, including Marriott International, Morgan Stanley and PepsiCo. Singapore has 40% of Fortune 500 companies, and The Netherlands is even more popular, with giants like Google, IBM, and Fiat Chrysler. Ireland reduced its corporate tax rate and lured in Airbnb, Facebook, LinkedIn and 700 others. Luxembourg harbors funds of 35% of Fortune 500 corporations, including Amazon.

The USA is also guilty. Chuck Collins in The Nation defines it as a global center for money hiding and illicit wealth storage.” Additionally, he notes Delaware (where Biden served as Senator for 36 years) is the “go-to destination for plutocratic tax dodgers and criminal money launderers.” The USA’s fifty individual entities can establish their own secrecy laws; this allows states like Delaware, South Dakota, Wyoming and Nevada “to compete in a race to the bottom to lower disclosure standards and create conditions for anonymous shell companies and dynasty trusts favored by the world’s wealthy.” Delaware is by far the worst. 50% of US corporations are registered in Delaware - 1.3 million entities in a state with 960,000 people. “1209 Orange Street in Wilmington, is the mail drop for over 285,000 companies.” [source]

The USA is terrible, but the absolute worst is evident in the 2019 chart below, compiled by Tax Justice Network:

The Top 10 countries that proliferate corporate tax avoidance:

British Virgin Islands (British territory)

Bermuda (British territory)

Cayman Islands (British territory)

Netherlands

Switzerland

Luxembourg

Jersey (British dependency)

Singapore

Bahamas

Hong Kong

This nasty list accounts for 52% of the world’s corporate tax avoidance. Four are British, indicting the UK as the world’s greatest enabler of corporate tax avoidance - approximately 33% of tax avoidance is in UK-lands. [source] Netherlands is a distant second, with 7 per cent.

The consequences of this robbery is deadly. Tax dodging costs developing countries $100 billion a year, crippling their public services. Sample percentages of lost revenue in Africa: Sudan 30.37%, Mozambique 15.36%, Chad 22.35%, Central African Republic 24.65%, Lesotho 31.25%, Liberia 52.67%. Oxfam believes the hidden money could have educated 124 million children and prevented the death of nearly eight million infants, children, and mothers annually. In Africa alone, 4 million children’s lives could be saved, and enough teachers could be employed to enroll every African child in school.

How can tax havens be abolished? The solutions are simple and agreed upon by economists Thomas Piketty and Joseph Stiglitz and many tax reform organizations.

WHAT NEEDS TO HAPPEN IS:

1. Corporations need to be taxed where their employees work, not where their ledgers hide (Tax Justice Network) This simple step can prevent corporations from eluding the higher rate they deserve.

2. Establish world-wide corporate tax rates, applicable to every nation. This strategy is promoted in Capital and Ideology by Thomas Piketty.