Governments need to act on tax havens to stop destructive race to bottom on corporate tax

“Collecting tax is one of the key means by which governments are able to address poverty and inequality. But big business is dodging tax on an industrial scale, depriving governments across the globe of the money they need to address poverty and invest in healthcare, education and jobs,” Oxfam stated on its report released on 12 December, ‘Tax Battles – The dangerous global Race to the Bottom on Corporate Tax’

Oxfam is an international confederation of 19 organizations working together with partners and local communities in more than 90 countries. It works around the world to find practical, innovative ways for people to lift themselves out of poverty and thrive.

Oxfam report revealed the world’s worst corporate tax havens – extreme examples of a destructive race to the bottom on corporate tax which has seen governments across the globe slash corporate tax bills in an attempt to attract business.

Oxfam calls on governments to work together to put a stop to this before it is too late.

This year, Oxfam revealed, that just 62 people own the same wealth as the bottom 3.6 billion people. This stark statistic illustrated the scale of an inequality crisis that is harming economic growth and the fight against poverty, as well as destabilizing societies across the globe.

Well-designed tax systems that redistribute wealth and provide spending on public goods are one of the most effective ways for governments to reduce inequality and poverty, while sustaining growth.

To attract investments Government give low corporate tax rates or other tax giveaways, but evidence shows that corporate tax rates are not the main consideration for companies seeking countries to invest.

There are 12 reasons why companies choose to invest in a country, according to the World Economic Forum’s Global Competitiveness report, but the most important are:

• The quality of the country’s infrastructure,
• The availability of an educated, healthy workforce, and,
• Social stability.

Over the last few decades, figures show that the tax contributions of large corporations are diminishing as governments compete in a race to the bottom on corporate taxation.

Tax havens are the ultimate expression of the global corporate tax race to the bottom, Oxfam report looks at two core elements of the race to the bottom on corporate tax.

1. The report examines the corporate tax havens that are undermining the whole system of effective corporate tax, naming the worst 15 in the world.
2. The report analyses the way the rest of the world is engaging in a dangerous and ultimately self-defeating competition on corporate tax rates and tax exemptions.

Tax havens are jurisdictions or territories which have intentionally adopted fiscal and legal frameworks allowing non-residents (persons or legal entities) to minimize the amount of taxes they pay where they undertake substantial economic activity.

Tax havens tend to specialize but they usually fulfill several of the following criteria:

• They grant fiscal advantages to non-resident individuals or legal entities only, without requiring that substantial economic activity be undertaken in the country or dependency.
• They provide a significantly lower effective level of taxation, including zero taxation for natural or legal persons.
• They have adopted laws or administrative practices that prevent the automatic exchange of information for tax purposes with other governments.
• They have adopted legislative, legal or administrative provisions that allow the non-disclosure of the corporate structure of legal entities (including trusts, charities, foundations), or the ownership of assets or rights.

The Oxfam research reveals that some of the worst culprits are countries with reasonable nominal corporate tax rates, including the Netherlands, Luxembourg, and Hong Kong. Singapore is number 5 from the top in rank.

Oxfam’s ranking of the top 15 corporate tax havens

Source: The Oxfam report

Governments must act now

Every month that passes will bring another expose of a household brand for dodging tax despite huge profits, causing more public anger and disgust. Multinational corporations should no longer be allowed to escape their obligations to the societies in which they operate and where they spring their profits.

Many world leaders have said this needs to stop, yet their actions fall far short of their words.

Until governments are willing to take the tough decisions required to change the policies that allow these corporations to avoid their tax obligations, the race to the bottom in corporate taxation will continue. Left unchecked, it is possible that this could lead to the effective end of corporate taxation in our lifetimes, which will have a strong impact on inequality and the fight against poverty.

The recommendations Oxfam gave of what must be done now by governments to stop the race could be found on Oxfam full report.