Saturday, July 11, 2020

£1 trillion a year to tax havens

Multinational firms shift $1.3 trillion (£1 trilllion) a year into tax havens.

The vast scale of profit shifting by multinationals costs governments $330bn in lost revenues, deepens inequality and benefits a minority of wealthy individuals and large corporations at the expense of ordinary people and public services, the Tax Justice Network said

The UK is a key part of an “axis of tax avoidance“, along with the Netherlands, Switzerland and Luxembourg, that facilitates 72 per cent of corporate tax dodging, according to the Tax Justice Network, which conducted the research. It analysed data collected by the Organisation for Economic Co-operation and Development (OECD), which breaks down, for the first time, where firms make their profits, rather than simply where their accountants choose to say those profits are made to give the most complete picture yet of the damage that corporate tax dodging does to nations’ public finances. The OECD data is an example of country-by-country reporting — seen as a key weapon in the fight against tax avoidance. Typically multinationals’ report their accounts at the group level, allowing companies within the group to shift profits between themselves by charging each other fees or interest. Through this method, an online bookseller based in Luxembourg, for example, or a smartphone maker in Ireland, could ensure that profits made all over Europe were moved into countries that charge ultra-low rates of tax, saving the hypothetical companies billions of euros.
Country-by-country reporting exposes this practice by breaking down sales, costs and profits into each jurisdiction, based on where activity actually happened.

From the 15 countries who reported comparable data, the Tax Justice Network tracked $467bn of profits shifted into tax havens. After extrapolating the figures out to other countries, and accounting for under-reporting of tax avoidance, TJN estimated that $1.3 trillion is artificially shifted into low-tax countries every year.

The Netherlands generous rules on corporate taxation enabled corporations to shift $95bn of profits, dodging $24bn of tax. The true figure is likely to be significantly higher, as the figures only relate to the partial data reported to the OECD.

Rosa Pavanelli, general secretary of Public Services International union said the tax avoidance exposed by the OECD data is a “direct contributing factor to the shocking underfunding of our public services, which the Covid-19 pandemic has fully exposed”.

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