A newly released report from the Tax Justice Network underscores the stubborn, persistent loss of billions of dollars to offshore tax abuse and the resistance of leading countries to contribute to a solution to the problem.
The new State of Tax Justice report for 2024 takes aim at the practices of multi-national companies and high-net-worth individuals. While the report is worthwhile reading on its own, here are some pivotal points:
- The report details that $492 billion is lost to offshore tax havens each year.
- The biggest players in the loss of tax revenue are multinational corporations (MNCs). The report notes that MNCs account for approximately one-third of global economic output. The shifting of profits of $1.42 trillion offshore each year translates to a loss of approximately $348 billion in tax revenue. The Organization for Economic Co-operation and Development (OECD) program on the issue, termed “base tax base erosion and profit shifting (BEPS), seems to have done little to curb MNCs' tax abuse.
- High net-worth individuals are responsible for $144.8 billion in offshore tax evasion each year.
- Eight countries that have voted against a global tax framework represent only eight percent of the world’s population, but are responsible for 34 percent of “global tax losses due to corporate tax abuse.” Those countries are South Korea, the United States, Canada, the UK, New Zealand, Australia, Japan, and Israel. The report terms these countries as the “hurtful eight.” Inexplicably, although these countries vote against control measures, these same countries lose more than $177 billion annually to global tax abuse. Go figure.
- The OECD Common Reporting Standard (CRS) requires the automatic exchange of information regarding financial accounts. The CRS has proven effective, but uneven access by countries to the standard limits its assistance to those countries. In addition, given the crackdown, offshore tax evasion is shapeshifting into different asset types, limiting the reach of the CRS.
- The top ten tax havens ranked “most complicit” in MNC tax abuse include the British Virgin Islands, the Cayman Islands, Bermuda, Switzerland, Singapore, Hong Kong, the Netherlands, Jersey, Ireland, and Luxembourg.
In a hopeful development, in late November, the United Nations General Assembly voted to begin negotiations on a global tax restructuring to address offshore tax evasion and other tax abuse. The vote sets the stage for talks to begin in February 2025 and conclude in 2027. The eight blocking countries noted above were joined by Argentina but fell far short of defeating the proposal.
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