Is the end of corporate tax evasion and tax havens finally in sight?
As humanity continues to experience a pandemic that has already claimed the lives of 3.3 million people, disrupted the lives of millions more and resulted in increased unemployment, poverty and hunger among vulnerable populations Across the world, some of the world’s most powerful multinational companies have seen their profits increase. In addition, their immoral (although often legal) abuse of tax schemes allows them to evade taxes in an amount equivalent to the annual salaries of 34 million nurses each year according to figures from the Tax Justice Network, a coalition of researchers. and the fight against tax evasion. defenders.
Civil society organizations, unions, academics and economists have urged leaders of the world’s largest economies to forge a draft deal that prevents companies from evading paying taxes through so-called tax havens , jurisdictions that impose minimum tax rates on profits generated abroad. This escape amounts to billions of dollars a year and disproportionately affects low-income countries.
Since the end of 2020, “there has perhaps been more progress than a decade in these areas,” says Paul Monaghan, managing director of Fair Tax Mark, a UK-based civil organization that awards certificates. to financially responsible companies. “There is a radical change in the developments underway.”
The progress Monaghan is referring to could be consolidated at the July 8 meeting of G20 finance ministers. The G20 member states together account for around 90% of global GDP, 80% of global trade and two-thirds of the world’s population. The purpose of the meeting, organized by the Organization for Economic Co-operation and Development (OECD), is to agree on new rules for the taxation of cross-border trade, as well as an overall minimum corporate tax rate, which would reduce the incentive to report profits in other jurisdictions. According to an OECD report published in February: “Today, all the conditions to find a consensual solution by the July meeting of G20 finance ministers have been met.”
In addition to the publication of new data on the amounts lost in public coffers, the numerous appeals from experts and activists for tax justice, and increased public awareness, these conditions are a direct consequence of the health crisis, which has highlighted health deficiencies. all over the world – and it was increasingly clear that their improvement, as well as the revival of national economies, would require huge sums of money.
With changes on the horizon, âfor the very first time, mainstream investors don’t see tax evasion as a good thing because they think it makes more money for their shareholders, but in fact like a bad thing with huge risks, âsays Monaghan. Equal times. âWe don’t even need all countries to agree to the rules. The truth is that for the rules to work, the G20 just needs to accept them. Rightly or wrongly, that would bring about the necessary change. “
The proposal for an overall minimum corporate tax rate for multinational corporations gained significant momentum after U.S. Treasury Secretary Janet Yellen reiterated full U.S. support for the measure in early April. A week later, G20 finance leaders also reaffirmed their commitment to reaching an international deal by mid-2021.
A survey conducted in the United States, France, Germany, Italy, Poland, the Netherlands and the United Kingdom, published last September by the think tank More in Common, shows that an overwhelming majority of citizens of these countries (87 to 95%) support governments cracking down on companies that use tax havens.
âThere has been like a 20-year movement for global tax justice and now it has accomplished things no one even thought possible 10 years ago,â says Sara Burke, senior policy analyst at the Friedrich Ebert Foundation ( FES) based in Berlin. . âDeveloping countries want to know if multinational corporations are good citizens of the world. Are they paying the right amount of taxes and paying them in the right places? “
A February report by the United Nations High Level Panel on Financial Accountability, Transparency and Integrity (FACTI) made recommendations to prevent tax abuse, corruption and money laundering, as well as illicit financiers, to “steal billions of dollars for the possibility of a better future.” According to the panel, ‘nothing less than a transformation of the global financial system’ can solve the problem.
To do this, it would be necessary to measure the extent of corporate tax abuse. Barely a year ago, only estimates were available.
In July 2020, however, the OECD released an unprecedented report based on standards labeled “utopian and unrealistic” when the Tax Justice Network first proposed them in 2002. According to the report, countries lose 427 billion dollars (352 billion euros)) to tax havens each year, both through corporate tax abuse and private tax evasion.
While low-income countries account for just over 10% of that amount, their tax losses are equivalent to almost 52% of their combined public health budgets. Tax losses in higher income countries represent only 8% of their combined public health budgets.
âFor the very first time, we were able to see how many taxes each country in the world is losing both due to the tax abuse of multinationals and the offshore private tax evasion of high net worth individualsâ, says Mark Bou Mansour, communications coordinator at the Tax Justice Network. “This is money that could have gone to the health services, doctors and nurses who were and still are on the front lines saving lives every day.”
Contrary to popular belief, tax havens are not small nations in the Caribbean Sea: the highest income countries are responsible for 98% of countries’ tax losses. The five most responsible jurisdictions are the British Overseas Territory, the Cayman Islands, the United Kingdom, the Netherlands, Luxembourg and the United States.
âThe US $ 427 billion figure is just the tip of the iceberg. This is exactly what we were able to observe. There are studies that estimate countries lose a lot more, âMansour says.
Solutions in sight
The new US administration has announced an ambitious program of infrastructure spending of $ 2.25 trillion (â¬ 1.86 trillion) to build and repair national roads, bridges, rail lines and utilities. This comes on top of the US $ 1.9 trillion (â¬ 1.6 trillion) economic stimulus package that US President Joe Biden signed into law in March. This increase in spending will be financed by a substantial increase in corporate taxes.
As part of these plans, the US government is also pushing for an update of the international tax system. Last February, for example, the United States withdrew from the OECD its demand that American companies only voluntarily adhere to a global tax framework for digital services, a move Monaghan calls “incredibly important.”
Observers say the new US stance dramatically increases the likelihood of an international tax deal that ends the “race to the bottom,” in which tax havens compete with each other to offer higher tax rates. lower in order to attract capital.
The US Congress is also considering raising the corporate tax rate from 21 percent to 28 percent, as well as creating a minimum tax on income earned abroad. These initiatives would put an end to a 40-year trend of systematic corporate tax cuts, which has deprived governments of essential resources for social spending. The global average corporate rate rose from 40% in 1980 to the current average rate of 23.8%.
âWe see resistance, and big companies are going to resist as much as they can,â says Burke. However, as she explains, the damage to a company’s image for refusing to pay more equitable tax rates would ultimately be unbearable.
A watered-down implementation of the United States’ campaign for a global minimum corporate tax is already under discussion at the OECD.
According to this plan, around 75 per cent of the taxes collected would be absorbed by the richest member states of the OECD. A group of international economists led by the Tax Justice Network is proposing a more equitable distribution of collected taxes based on the US plan.
The long-term plan includes creating a global asset registry that would determine who owns which stocks and bonds. Detailed in the book by French economist Gabriel Zucman The hidden wealth of nations (2013), the objective would be to consolidate information from all banks in the world and share it with national tax authorities. Such a register, according to Zucman, would deal “a fatal blow” to the so-called financial secrecy, a ruse which has so far made it possible to conceal wealth illegally amassed.
A global agreement on a minimum corporate tax in the coming months would represent a major achievement that would significantly reduce the attractiveness of tax havens.
Over the past 13 months, millions of people have lost their jobs, their health and their wealth. During the same period, the total wealth of billionaires in the United States alone increased by $ 1.6 trillion, or 44%, according to the Institute for Policy Studies, a progressive American think tank. At the same time, it has become increasingly clear: the billions of dollars that the world’s most powerful corporations have avoided paying in taxes would be essential for a just economic recovery in the post-pandemic era.
âAs countries and people seek to rebuild themselves, one of the things we tend to hear is that we need to rebuild better. But you can’t rebuild better above a tax haven trap. So we need to take back control of our tax system, âsays Mansour.