UK territories British Virgin Islands, Bermuda and Cayman are top three worst enablers of corporate tax avoidance causing financial damage

Forty percent of today’s cross-border direct investments reported by the IMF – $18 trillion in value – are being booked in just 10 countries that offer corporate tax rates of 3 percent or less.

An independent international research organization, The Corporate Tax Haven Index, has published a report https://www.corporatetaxhavenindex.org/introduction/cthi-2019-results , which was named the United Kingdom and a handful of OECD countries as the jurisdictions most responsible for the breakdown of the global corporate tax system. The United Kingdom, says the report, is mostly responsible through its controlled network of satellite jurisdictions. These countries undermine the ability of governments across the world to meaningfully tax multinational corporations. Over $500 billion in corporate tax is dodged each year globally by multinational corporations. Forty per cent of today’s cross-border direct investments reported by the IMF – $18 trillion in value – are being booked in just 10 countries that offer corporate tax rates of 3 percent or less.

The Corporate Tax Haven ranks countries based on the degree to which it enables corporate tax avoidance. Each country’s corporate tax haven score is then combined with the scale of corporate activity in the country to determine the share of global corporate activity put at risk of tax avoidance by the country. The greater the share of global corporate activity the higher it ranks on the index.

CTH says that the top 10 countries that have done the most to proliferate corporate tax avoidance and break down the global corporate tax system are:

1. British Virgin Islands (British territory)
2. Bermuda (British territory)
3. Cayman Islands (British territory)
4. Netherlands
5. Switzerland
6. Luxembourg
7. Jersey (British dependency)
8. Singapore
9. Bahamas
10. Hong Kong

CTH says that these 10 jurisdictions alone are responsible for over half (52 per cent) of the world’s corporate tax avoidance risks as measured by the Corporate Tax Haven Index. Over two fifths of global foreign direct investment4 reported by the International Monetary Fund is booked in these 10 countries, where the lowest available corporate tax rates averaged 0.54 per cent. The top three ranked jurisdictions are part of the British-controlled network of satellite jurisdictions to which the UK has outsourced some of its corporate tax havenry.

The top 10 jurisdictions have dealt the global corporate tax system a devastating double blow. First, the colossal scale at which the jurisdictions have enabled corporate tax avoidance risks to woo multinational corporations has made countries’ statutory corporate tax rates meaningless. Second, the jurisdictions have triggered a ‘race to the bottom’ across the globe that will further deplete tax revenues as countries desperate to claw back foreign investment engage in the false economy of ‘tax competitiveness’ and increase their complicity in corporate tax havenry. The corporate tax avoidance risks and corrosive lose-lose outcomes documented by the new index illustrate that what is often referred to as ‘tax competition’ is more aptly described as ‘tax war’.5

The UK with its corporate tax haven network is by far the world’s greatest enabler of corporate tax avoidance and has single-handedly done the most to break down the global corporate tax system, accounting for over a third of the world’s corporate tax avoidance risks as measured by the Corporate Tax Haven Index. That’s four times more than the next greatest contributor of corporate tax avoidance risks, the Netherlands, which accounts for less than 7 percent.

Nearly 14 percent of foreign direct investment reported by the International Monetary Fund – over $6 trillion – is booked in the UK network, where the lowest available corporate tax rates averaged 1.73 percent.

Of the 10 jurisdictions whose tax systems received the highest corporate tax haven scores for enabling corporate tax avoidance, 8 are part of the UK network: the British Virgin Islands, Bermuda, the Cayman Islands, the Isle of Man, Turks and Caicos, Anguilla, Jersey, and Guernsey.

Alex Cobham, chief executive at the Tax Justice Network, said:

“The hypocrisy revealed by the Corporate Tax Haven Index is sickening. A handful of the richest countries have waged a world tax war so corrosive, they’ve broken down the global corporate tax system beyond repair. The UK, Netherlands, Switzerland and Luxembourg – the Axis of Avoidance – line their own pockets at the expense of a crucial funding stream for sustainable human progress. The ability of governments across the world to tax multinational corporations in order to pay teachers’ wages, build hospitals and ensure a level playing field for local businesses has been deliberately and ruthlessly undermined.

“When our laws for taxing global corporations stop working, the global economy stops working for the vast majority of us. All around us we see inequalities go unaddressed, political extremism unchallenged and democratic institutions faltering – and the thread that runs through it all is a failure to defend progressive taxation. To curtail the corporate tax avoidance that costs hundreds of billions of dollars every year, governments must finally deliver international rules that ensure profits are declared, and tax paid, in the places where real economic activity takes place. Corporations should be taxed where their employees work, not where their ledgers hide.”