A club of rich countries determining global rules on corporate tax are responsible for over two-thirds of global corporate tax abuse estimated at £176bn a year, reports the Corporate Tax Haven Index 2021
The index, produced by the Tax Justice Network, is a ranking of countries most complicit in helping multinational corporations pay less tax than they are expected to. The index documents the ways in which global corporate tax rules set by the OECD failed to detect and prevent corporate tax abuse enabled by the OECD’s own member countries – and in some cases, pushed countries to rollback their tax transparency.
Global corporate tax abuse costs the world $245bn (£176bn) in lost tax revenues a year. The Corporate Tax Haven Index 2021 finds OECD countries and their dependencies are responsible for 68% cent of the world’s corporate tax abuse risks.
Broken down, OECD countries are responsible for 39% of the world’s corporate tax abuse risks and their dependencies – like the UK’s Crown Dependency Jersey and the Netherlands’ Aruba – are responsible for 29%.
The 2021 Corporate Tax Haven Index sees OECD countries or their dependencies take up the top six spots on the ranking of the world’s greatest enablers of corporate tax abuse. These are, in descending order, the British Virgin Islands, Cayman and Bermuda – three British Overseas Territories where the UK government has full powers to impose or veto law making and where power to appoint key government officials rests with the British Crown – and the Netherlands, Switzerland and Luxembourg.
The world’s top 10 biggest enablers of global corporate tax abuse are:
- British Virgin Islands (British Overseas Territory)
- Cayman Islands (British Overseas Territory)
- Bermuda (British Overseas Territory)
- Netherlands
- Switzerland
- Luxembourg
- Hong Kong
- Jersey (British Crown Dependency)
- Singapore
- United Arab Emirates
The index ranks each country based on how intensely the country’s tax and financial systems allow multinational corporations to shift profit out of the countries where they do business and consequently pay less tax than they should there. It grades each country’s tax and legal system with a ‘haven score’ out of 100 where a zero represents no scope for corporate tax abuse and a 100 is unrestrained scope for corporate tax abuse. The country’s haven score is then combined with the volume of financial activity conducted in the country by multinational corporations to calculate how much cross-border corporate tax abuse is facilitated by the country.
A higher rank on the index does not necessarily mean a jurisdiction’s corporate tax laws are more aggressive, but rather that the jurisdiction in practice plays a bigger role globally in enabling the profit shifting that costs countries billions in lost tax every year.
A highly tax aggressive jurisdiction that facilitates a small volume of financial activity from multinational corporations, like Anguilla (ranked 39th), will rank below a less tax aggressive jurisdiction that is a major host of multinational corporations’ financial activity, like Belgium (ranked 16th).
The United Arab Emirates (UAE) entered the ranks of the world’s top 10 greatest enablers of corporate tax abuse after multinational corporations rerouted over $218bn foreign direct investment through OECD member Netherlands and into the UAE’s economy. Although the UAE’s haven score of 98 out of 100 did not change since the 2019 edition of the index, the injection from the Netherlands – which was equivalent to more than half of the UAE’s GDP – skyrocketed the volume of financial activity the UAE hosts from multinational corporations by nearly 180%. As a result, the UAE jumped up from 12th to 10th on the ranking.
Investigative work by the Tax Justice Network attributes the likely source of the injection to a multibillion-dollar game of “hot potato” where $200 billion in foreign direct investment were routed into the Netherlands from the US and South Africa in 2019. This large injection into the Netherlands seems to have then been rerouted into the UAE.
The UAE also appears to have replaced two British Overseas Territories – the British Virgin Islands (ranked 1st on the index) and Bermuda (ranked 3rd) – as a preferred destination for multinational corporations based in the Netherlands and multinational corporations that use the Netherlands as a conduit.
Read the full report here: Corporate Tax Haven Index 2021