sources of evasion
Multinational corporations are responsible for an estimated $312 billion in lost tax evasion, or 65% of total tax evasion. Mechanisms of evasion, as mentioned in the report “The State of Tax Justice” issued by it…. It indicates that these companies establish branches in countries that impose low tax rates, or in countries that do not impose taxes at all, and transfer large profits to these branches from Its activities in other countries allow it to evade paying high taxes. The profits that these companies transfer to the so-called “tax havens” are estimated at between $900 billion and $1100 billion, or 40% of their profits.
These companies have an enormous size equivalent to a third of the world’s GDP, and they represent half of the exports and a quarter of the world’s employment. Instead of being a huge source of taxes collected in the various countries in which it operates, because of its influence and capabilities it has become a huge source of evasion. But losses are not only in their direct form resulting from evasion associated with transferring profits to branches in other countries, but also include indirect losses. The amount of money that companies transfer to their branches in countries called “tax havens” ignites competition between countries to attract investments by reducing taxes on corporate profits. Such competition exacerbates losses in potential tax revenue, making losses “much larger than direct losses,” as the report states. According to the International Monetary Fund, the value of indirect losses is three times the direct losses.
The report indicates that high-income countries lose $276 billion annually due to corporate tax evasion, meaning that 88% of tax losses due to corporate evasion go to rich countries, while other countries lose only $36 billion annually. These figures affect the poorest countries more, as the loss of $36 billion constitutes 4.2% of the tax revenues of these countries, while the losses of high-income countries do not constitute more than 2.8% of their tax revenues.
One of the tools for attracting money, and one of the most attractive ways for money and huge profits, is banking secrecy. Many wealthy people transfer their money to countries that have laws that protect banking secrecy from exposure, or that do not have the exchange of tax information with their countries. Banking secrecy causes countries to suffer huge revenue losses, estimated at $171 billion annually. This figure represents 35% of the world’s total tax losses, according to the report’s estimates. OECD countries are responsible for 49% of the world’s banking secrecy-related risks. However, realistically, these countries are responsible for 92% of the tax losses resulting from tax evasion through banking secrecy, amounting to 157 billion dollars. Among the most prominent of these countries concerned with the obligation of banking secrecy: Britain, the Netherlands, Luxembourg and Switzerland.
Banking secrecy is an obstacle to the implementation of progressive tax regimes that target the wealth of the wealthiest classes and bridge the inequality gap.
Britain is the biggest and worst contributor to the channel of banking secrecy to evade tax by the wealthy. It uses its network of islands, such as the Cayman Islands and the Virgin Islands, to establish a kind of “emirates” for tax havens. This web of islands is commonly referred to as the British spider web. According to figures from the State of Tax Justice report, this British network is responsible for $88 billion in tax losses annually.
In general, banking secrecy constitutes an obstacle to the implementation of progressive tax systems that target the wealth of the wealthiest classes, and aim to redistribute them to bridge the gap resulting from inequality. As the aforementioned report indicates, the feeling that taxes and laws are not applied equitably to all segments of society creates a kind of imbalance of trust in society.
The State of Tax Justice report proposes several solutions to reduce tax losses, the most important of which are:
1- Adding taxes on the additional profits of multinational companies, these profits are those that these companies obtain due to the Corona crisis. For example, pharmaceutical companies that manufactured vaccines for the virus, took advantage of the crisis to accumulate huge additional profits.
2- Adding taxes to the world’s wealthiest owners, with the aim of financing economic recovery from the pandemic.
3- The solutions also include the imposition of a global minimum tax, so that states are obliged to abide by it. The aim of this is to reduce the “tax competition” to attract money.
british spider web
The State of Tax Justice 2021 report describes Britain and its island network as the “British spider web” because it is solely responsible for 32% of all corporate tax losses, making the UK the largest contributor to corporate tax evasion globally. This description refers to the workings of the British Isles and its dependent territories (the British Isles and its dependent territories are under British jurisdiction) as a network aimed at attracting profits and illicit financial flows. London is at the center of this network, as companies can remit money to London from these islands and territories in order to impose tax residence on those islands and territories where tax rates are low.
This network allows companies to evade taxes worth an estimated $101 billion annually. And when we add tax losses due to personal wealth, the network becomes responsible for 39.2% of all tax losses incurred by countries around the world, costing these countries more than $189 billion annually.
$1 billion in tax losses from corporate evasion goes to countries with effective tax rates of less than 10%, such as Britain, Singapore, the Netherlands and Switzerland.
A trillion dollars is an estimate of the total wealth in the so-called “tax havens”, including all kinds of assets
A trillion dollars is the estimate of financial assets in “tax havens”, which is equal to 11% of the world’s gross domestic product