Tackling tax havens

Tax Justice Australia Network

I have made revenue collection a frontline institution because it is the one which can emancipate us from begging. If we can get about 22 per cent of GDP we should not need to disturb anybody asking for aid; instead of coming here to bother you, give me this, give me this, I shall come here to greet you, to trade with you.  - President Yoweri Museveni of Uganda, that currently collects around 11 per cent of its GDP in tax.

Tax provides the money for services that we all need, like health care, education, aged care, clean water and roads. However, some wealthy individuals and multinational companies engage in large scale tax dodging, avoiding paying hundreds of billions of dollars in taxes globally. This means everyone else has to pay more tax or go without essential services. The impact on developing countries is devastating, denying them the money they need to be self-sufficient and making them dependent on aid and debt.

Tax, not aid, is the most sustainable source of finance for development. Tax can help make governments accountable to their citizens, while aid can make them accountable to the interests of foreign donors. As put by South Africa’s Finance Minister, Trevor Manuel, “It is a contradiction to support increased development assistance yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country”.

In contrast, tax havens facilitate corruption globally and as such are an impediment to addressing global poverty and achieving the Millennium Development Goals. They force developing countries to lower tax rates to compete with the havens in order to attract foreign capital. Tax havens actively assist multinational companies and wealthy individuals in being able to engage in tax evasion and tax avoidance, cheating other governments out of much needed revenue. It is estimated that half of all global trade now takes place through tax havens, helping companies to avoid contributing their fair share of tax.

The money lost by developing countries from ‘illicit financial flows’ is vast, mainly through tax evasion and tax avoidance  but including other forms of corruption and crime. Anti-corruption non-government organisation, Global Financial Integrity, estimated that in 2008 alone, Africa lost US$64 billion in illicit flows, while the Philippines lost US$16.4 billion, India US$21.5 billion and Indonesia US$16.5 billion.  Globally, overseas aid in 2009 was only US$120 billion.

Christian Aid estimated that, through tax evasion and tax avoidance by transfer mispricing and false invoicing, in 2008 developing countries lost an estimated US$160 billion in tax. They estimated that, if this money was used in the same way as the taxes actually collected, it would have saved the lives of 350,000 children.

The Tax Justice Network has recently released research that estimated the amount of unreported private financial wealth owned by wealthy individuals held in tax havens was between $21 trillion and $32 trillion.  This is at least the size of the US and Japanese economies combined. The lost tax revenue on this hidden wealth is estimated to be between $190 billion and $280 billion.

Where are tax havens?

Tax havens are all over the world. Many havens are small islands states such as Jersey, Cyprus and Malta in Europe; Labuan and Singapore in Asia, the Seychelles and Mauritius that serve India and Southern Africa, and Cayman Island and Bermuda in the Caribbean. Additional tax havens in our region include the Cook Islands, Marshall Islands, Samoa, Tonga and Vanuatu. 

There are also a significant number of onshore havens that serve particular aspects of the global market. The City of London is a Corporation within wider London that hosts the offshore Eurobond market, whilst Switzerland, Austria and Luxembourg have insisted on their right to provide secret banking facilities. The Netherlands is home to almost 20,000 ‘mailbox companies, corporate shells set up by foreign companies and wealthy individuals who use them to reduce taxes on royalties, dividends and interest payments. Globally some 1,165 companies use Dutch tax shelters to reduce or eliminate taxes on royalties and patents. A number of states in the US act as tax havens, with Delaware being a key example. An office at 1209 North Orange Street, Wilmington, Delaware is host to over 200,000 companies including Ford, General Motors, Coca Cola, KFC, Intel, Google and Hewlett Packard. Only about 80 people work in the building.

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