MUMBAI: The United Arab Emirates (UAE), an attractive destination for wealthy Indians where it is widely used for round trips (where black money is returned as an inflow of FDI), made the top ten list of countries which are included in the ‘Corporate Tax Haven Index’.
The two-year index was released on Tuesday by the Tax Justice Network (TJN). This independent, research-based international network has identified the UK with its network of British overseas territories such as British Virgin Island, Cayman Islands and Bermuda as the top drivers for corporate tax avoidance.
These three island states topped the index, while Great Britain itself was 13th. The Netherlands, Switzerland and Luxembourg took fourth, fifth and sixth place. TJN estimates that $ 245 billion per year is directly lost to cross-border corporate tax abuse by multinational corporations (MNCs).
According to the press release, the Organization for Economic Co-operation and Development (Oecd) failed to recognize and prevent the abuse of corporate taxes made possible by its own rich member countries.
The Oecd member countries (37 in total), including the UK, the Netherlands, Switzerland, Luxembourg and their dependencies, are responsible for 68% of the global risks of corporate tax abuse. The demand for a transfer of the international tax regime to the United Nations (UN) is therefore gaining unprecedented momentum in the press.
In this regard, Alex Cobham, General Manager of the Tax Justice Network said, “We need to reprogram our global tax system to prioritize the well-being and livelihood of people over the wishes of those who do not want to pay their taxes. Rules about where and how global corporations pay corporate taxes must be laid down at the United Nations in the daylight of democracy, not by a small club of rich countries behind closed doors. ”
The Corporate Tax Haven Index covers 70 countries that are classified using a “Corporate Tax Haven” value. The index reflects how aggressively countries are using low or no corporate taxes, loopholes, secrecy, lax anti-abuse provisions, and aggressive tax treaties (which benefit stakeholders) to attract multinational corporations and allow them to escape tax rules in other countries or to undermine this.
As in other countries, it has a ripple effect to reclaim foreign investments and fall back on tax competitiveness. The index also takes into account a global scale weight that takes into account the extent to which a country is present in cross-border transactions.
Because of this, ranking higher in the index does not necessarily mean that a country’s corporate tax laws are more aggressive, but that that particular country plays a bigger role in enabling the shifting of profits that cost other countries billions in tax losses every year.
Some of the most popular countries through which FDI to India are channeled are in the 15 countries in this index. These include: Netherlands (4th place), Singapore (9th place), United Arab Emirates (10th place), Great Britain (13th place), Cyprus (14th place) and Mauritius (15th place).
The UAE made it into the top ten index for the first time. Research by TJN shows that $ 200 billion in foreign direct investment from the United States and South Africa into the Netherlands in 2019. These then appear to have been diverted to the UAE.
The shift towards the UAE can be explained in part by the milder adoption of the rules on core income generation activities for economic substances that require a certain level of economic activity in the jurisdiction in which a multinational company is profitable. In addition, this is due to the UAE’s growing role as the preferred offshore financial center for multinational corporations in Africa and Asia.