These are the findings of the first study led by The Tax Justice Network (TJN), which is an independent international research-based network, which was published in partnership with other organizations.
‘The State of Tax Justice – 2020’, which is the inaugural edition of the report, explains that of the 427,000 million dollars in taxes that countries lose each year in tax havens worldwide, 245,000 million dollars (or the 57.4%) are lost directly due to tax abuse by multinational corporations (MNEs) and $ 182 billion (or 42.6%) due to private tax evasion.
The report analyzes the data that were self-reported by multinational companies to the tax authorities, due to the Base Erosion and Profit Shifting (BEPS) project headed by the Organization for Economic Cooperation and Development (Oecd).
Multinational companies paid billions less in taxes by shifting $ 1.38 trillion of profits from the countries where they were generated to tax havens, where corporate tax rates are extremely low or non-existent. Private tax evaders paid less taxes than they should by storing a total of more than $ 10 trillion in financial assets abroad, the report added.
In the context of the pandemic, the report translates the loss of more than $ 427 terms in nurse salaries and claims that it costs countries the equivalent of nearly 34 million annual nurse salaries each year or the annual salary of a nurse every second.
The solutions suggested by TJN and other partners for this study are that governments should introduce an excess profit tax on multinational companies, such as global digital companies, that are making excessive profits during the pandemic. They also propose the introduction of a wealth tax with punitive rates for opaquely owned offshore assets. Finally, since the OECD is perceived as a conglomerate of rich countries, they seek a United Nations (UN) tax convention to establish multilateral standards for corporate taxes and guarantee fiscal cooperation between governments.
Higher-income countries are responsible for 98% of the global tax losses borne by countries, amounting to more than $ 419 billion each year. On the other hand, lower-income countries are responsible for only 2% of global losses, resulting in an annual fiscal loss of more than $ 8 billion, the report states.
According to him, the five jurisdictions most responsible for countries’ tax losses are led by the Cayman Islands (a British territory), which accounts for 16.5% of global tax losses, totaling more than $ 70 billion. It is followed by the United Kingdom, which accounts for 10% of global tax losses of more than $ 42 billion, and the Netherlands, which is responsible for 8.5% of global tax losses of more than $ 36 billion. Luxembourg is responsible for global tax losses of more than $ 27 billion (6.5%) and the United States represents 5.5% of global tax laws, of more than $ 23 billion.
G20 member countries are collectively responsible for 26.7% of global tax losses, costing countries more than $ 114 billion in lost taxes each year. The G20 countries themselves also lose more than $ 290 billion each year.
Impact in India: TJN, has developed a tool to analyze a country’s exposure to hidden (illegal) elements in financial flows, whether through trade, investment or banking services. For India, which is said to lose $ 10.3 billion annually in the form of lost taxes to other countries, ‘foreign direct investment abroad’ (OFDI) is its most vulnerable channel, with a vulnerability score of 66 %. Mauricio Singapore and the Netherlands are the three countries that contribute the most to this vulnerability factor. The proportion of vulnerability contributed by each of the three main countries is indicated in percentage terms, which translates into 23.6%, 17.2% and 11.2%, respectively.
Of India’s annual tax loss of $ 10.3 billion, a large part of it, nearly $ 10.11 billion, is due to international corporate tax abuse. The balance of 202.15 million dollars is due to private tax evasion abroad.
According to government data, due to the pandemic, India’s OFDI fell in the first four months (April-July 2020) to $ 5.7 billion, in the corresponding period of the previous year it was $ 11.13 billion. Historically, the government has focused more on curbing tax evasions on incoming investments, admits a government official. Lately, however, there is also a keen eye on outbound investments for any tax abuse, including royalties paid to overseas affiliates in low-tax jurisdictions, he adds.
The report fixes India’s GDP at $ 2.51 trillion (based on the average of the last ten years), based on this, India’s fiscal loss stands at 0.41% of its GDP and is equal to $ 8 per population. of more than a billion.
Solutions in detail: The solutions suggested by TJN and other partners in this study, namely Public Services International and the Global Alliance for Tax Justice, are that governments should introduce a tax on excessive profits on those multinationals that are making excessive profits during the pandemic. , like global digital companies. , in order to eliminate profit transfer abuses. The surplus profits of multinationals should be identified at the global level and not at the national level, to prevent corporations from underreporting their profits by transferring them to tax havens and taxing them using a unitary tax method.
They also propose the introduction of a wealth tax, with punitive rates for opaquely owned offshore assets. The pandemic has already seen an explosion in the value of the assets of the rich, even as unemployment has soared to record levels in many countries. Finally, since the OECD is seen as a conglomerate of rich countries, they seek a United Nations (UN) tax convention to guarantee a global and genuinely representative forum to establish consistent multilateral standards for corporate taxes, for the necessary tax cooperation. between governments, and to offer comprehensive and multilateral fiscal transparency.
Alex Cobham, Executive Director of Tax Justice Network, said: “A global tax system losing more than $ 427 billion a year is not a broken system, it is a system programmed to fail …” “The pandemic has exposed the serious cost of turning tax policy into a tool to please tax abusers rather than protect people’s well-being. Now more than ever we must reprogram our global tax system to prioritize people’s health and livelihoods over the wishes of those who insist on not paying taxes We call on governments to introduce an excess income tax on large multinational companies that have been countries that change little for years, aimed at those whose profits have soared during the pandemic, while local businesses have been forced to close. For the digital tech giants who claim to have our best interests At heart while billions in taxes have been abused, this may be your redemption tax. A wealth tax coupled with this would ensure that those with broader shoulders contribute as they should at this critical time, ”Cobham added.
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