The biennial index, was released on Tuesday, by the Tax Justice Network (TJN). This independent research based international network, has identified the UK with its network of British Overseas Territories such as British Virgin Island, Cayman Islands and Bermuda as the largest enablers of corporate tax avoidance.
These three island countries topped the Index, while the UK itself was placed at rank thirteen. Netherlands, Switzerland and Luxembourg were placed at rank four, five and six respectively. TJN estimates that $ 245 billion in a year is directly lost to cross-border corporate tax abuse by multinational corporations (MNCs).
Its press note indicates that The Organisation for Economic Co-operation and Development (Oecd), has failed to detect and prevent corporate tax abuse enabled by its own rich member countries.
Oecd member countries (37 in total), which include UK, Netherlands, Switzerland, Luxembourg and their dependencies are responsible for 68% of the world’s corporate tax abuse risks. Thus, calls to shift international tax rule-setting to the United Nations (UN) is gaining unprecedented momentum, states the press note.
In this context, Alex Cobham, chief executive at the Tax Justice Network said: “We must reprogramme our global tax system to prioritise people’s wellbeing and livelihoods over the desires of those bent on not paying their tax. Rules on where and how global corporations pay corporate tax must be set at the UN in the daylight of democracy, not by a small club of rich countries behind closed doors.”
The Corporate Tax Haven Index covers 70 countries, which are ranked based on a ‘corporate tax haven’ score. The Index reflects how aggressively countries use low or nil corporate taxes, loopholes, secrecy, lax anti abuse provisions and aggressive tax treaties (which provide benefits to stakeholders) to attract MNCs and enable them to escape or undermine the tax regulations in other countries.
It has a ripple effect as other countries, to claw back foreign investments resort to tax competitiveness. The Index also factors a global scale weight, which takes into cognisance the scale of presence of a country in cross-border transactions.
Because of this, a higher rank on the Index does not necessarily mean a country’s corporate tax laws are more aggressive, but rather that this particular country plays a bigger role globally in enabling the profit shifting that costs other countries billions in loss of tax revenue each year.
Some of the popular countries through which FDI is routed into India are featured among the top 15 countries in this Index. These include: Netherlands (Rank 4), Singapore (Rank 9), UAE (Rank 10), UK (Rank 13), Cyprus (Rank 14) and Mauritius (Rank 15).
UAE entered the top ten Index for the first time. Investigative work by TJN indicates that $200 billion in foreign direct investments were routed into the Netherlands from the US and South Africa in 2019. This then seems to have been re-routed into the UAE.
The shift towards the UAE may in part be explained by its more lenient adoption of the Economic Substance Core Income Generating Activities rules, which require a certain level of economic activity to take place in the jurisdiction in which a MNC reports profits. In addition, it can be attributed to UAE’s growing role as the offshore financial centre of choice for multinational corporations operating in Africa and Asia.