Corporate Tax

Is the top of corporate tax evasion and tax havens lastly in sight?

As humanity continues to experience a pandemic that has killed 3.3 million people, disrupted the lives of millions more, and increased unemployment, poverty and hunger among vulnerable populations around the world, some are among the most powerful multinationals in the world to do this companies have seen profits rise. Additionally, their immoral (albeit often legal) abuse of tax systems allows them to evade taxes on 34 million nurses a year, according to the Tax Justice Network, a coalition of researchers and tax avoidance advocates.

Civil society organizations, trade unions, academics and economists have urged the leaders of the world’s largest economies to reach an interim agreement preventing companies from avoiding paying taxes through so-called tax havens. This circumvention runs into billions of dollars a year and disproportionately affects lower-income countries.

Since late 2020, “there may have been more progress in these areas than in a decade,” said Paul Monaghan, executive director of Fair Tax Mark, a UK-based civil organization that awards certificates to fiscally responsible companies. “There is a fundamental change in developments.”

The progress Monaghan is referring to could be consolidated at the July 8th G20 finance ministers meeting. The G20 member states together account for around 90 percent of global GDP, 80 percent of world trade and two thirds of the world’s population. The aim of the meeting, hosted by the Organization for Economic Co-operation and Development (OECD), is to agree to new rules for taxing cross-border trade, as well as a global minimum corporate tax rate that would reduce the incentive to report profits in other countries. An OECD report published in February states: “Today all the conditions are met to find a consensus-based solution by the July meeting of G20 finance ministers.”

Along with the release of new data on public treasury losses, the numerous demands from experts and activists for tax justice, and raising public awareness, these conditions are a direct result of the health crisis that has exposed the shortcomings of health systems around the world – and made it increasingly clear that improving them, as well as reviving economies, will require enormous sums of money.

With changes emerging, “For the first time, mainstream investors see tax avoidance not as a good thing because they think it makes more money for their shareholders, but as a bad thing with enormous risks,” Monaghan told Equal Times. “We don’t even need all countries to agree to the rules. The truth is that if the G20 approves them, it is enough for the rules to work. Rightly or wrongly, this would bring about the necessary change. “

Gaining momentum

The proposal for a global minimum corporate tax rate for multinational corporations gained considerable momentum after Treasury Secretary Janet Yellen reiterated US unreserved support for the measure in early April. A week later, the G20 heads of state and government reaffirmed their commitment to an international agreement by mid-2021.

A survey in the United States, France, Germany, Italy, Poland, the Netherlands, and the United Kingdom, published last September by the More in Common think tank, shows that an overwhelming majority of citizens in these countries (87 to 95 percent) this supports governments taking action against companies that use tax havens.

“There has been a 20-year movement for global tax justice, and now it has achieved things that no one thought possible 10 years ago,” said Sara Burke, senior policy analyst at the Berlin-based Friedrich Ebert Foundation (FES). . “Developing countries want to know whether multinational companies are good citizens of the world. Are they paying the appropriate amount of taxes and are they paying them in the right places? “

A February report by the United Nations High-Level Panel on Financial Accountability, Transparency and Integrity (FACTI) issued recommendations on preventing tax abuse, corruption and money laundering and illicit financial flows to “deprive billions of the possibility of a better future. ”According to the panel,“ nothing less than transforming the global financial system ”can address the problem.

To do this, the extent of corporate tax abuse would have to be measured. A year ago only estimates were available.

However, in July 2020, the OECD released an unprecedented report based on standards that were labeled “utopian and unrealistic” when the Tax Justice Network first proposed it in 2002. According to the report, countries lose $ 427 billion (EUR 352 billion) in tax havens each year from taxing both corporate tax abuse and personal tax evasion.

While lower-income countries account for just over 10 percent of that amount, their tax losses equal nearly 52 percent of their combined public health budgets. The higher-income countries’ tax losses represent only 8 percent of their combined public health budgets.

“For the first time we saw how much taxes every country in the world is losing to both tax abuse by multinational corporations and offshore tax evasion by wealthy individuals,” said Mark Bou Mansour, communications coordinator for the Tax Justice Network. “This is money that could have gone to healthcare, to the doctors and nurses who were and are on the front lines, saving lives every day.”

Contrary to popular belief, tax havens are not small nations in the Caribbean: the highest-income countries are responsible for 98 percent of the countries’ tax losses. The five most responsible jurisdictions are the UK overseas Cayman Islands, the United Kingdom, the Netherlands, Luxembourg and the United States.

“The $ 427 billion figure is just the tip of the iceberg. This is exactly what we saw. There are studies that estimate that countries lose a lot more, ”says Mansour.

Solutions in sight

The new U.S. administration has announced an ambitious $ 2.25 trillion ($ 1.86 trillion) infrastructure spending program to build and repair roads, bridges, railroad lines, and national public utilities. This is on top of a $ 1.9 trillion stimulus plan signed by US President Joe Biden in March. This surge in spending is financed by a substantial increase in corporate taxes.

As part of these plans, the US government is also pushing for the international tax system to be updated. Last February, for example, the United States withdrew its demand on the OECD that US companies only voluntarily adhere to a global tax framework for digital services, a decision Monaghan describes as “incredibly important.”

According to observers, the United States’ new position greatly increases the likelihood of an international tax treaty that would halt the “race to the bottom” in which tax havens compete for lower and lower tax rates to attract capital.

The US Congress is also considering raising the corporate tax rate from 21 percent to 28 percent and creating a minimum tax on income earned abroad. The initiatives would stop a 40-year trend towards systematic corporate tax cuts that has drained governments of key social spending resources. The average global enterprise rate has fallen from 40 percent in 1980 to the current average rate of 23.8 percent.

“We see the resistance, and the big companies will resist as much as possible,” says Burke. As she explains, if a company refuses to pay fairer tax rates, the damage to a company’s image would ultimately be unsustainable.

A watered-down implementation of the US drive to introduce a global minimum tax for companies is already being discussed in the OECD.

According to this plan, around 75 percent of the taxes collected would be taken over by the richest OECD member states. A group of international economists led by the Tax Justice Network is proposing a fairer distribution of collected taxes based on the US plan.

The long-term plan provides for the creation of a global register of assets that will determine who owns which stocks and bonds. The goal of the French economist Gabriel Zucman, The Hidden Wealth of Nations (2013), is to consolidate information from all banks in the world and to pass it on to the national tax authorities. According to Zucman, such a register would be a “fatal blow” against so-called financial secrecy, a trick that has so far made it possible to hide illegally accumulated wealth.

A global minimum corporate tax agreement in the coming months would be a major achievement that would drastically reduce the attractiveness of tax havens.

In the past 13 months, millions of people have lost their jobs, health and wealth. Over the same period, total billionaires’ wealth in the US alone rose $ 1.6 trillion, or 44 percent, according to the Institute for Policy Studies, a progressive US think tank. At the same time, it’s becoming increasingly clear that the billions of dollars that the world’s most powerful corporations have avoided to pay taxes would be critical to any post-pandemic economic recovery.

“When countries and people look to rebuild, we often hear that we need to rebuild better. But there is no better way to go back to a tax haven trapdoor. So we have to regain control of our tax system, ”says Mansour.

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