Briefings from War on Want
Tax havens and tax competition: one rule for the poor, no rules for the rich “Only the little people pay taxes.” (Billionaire hotel owner Leona Helmsley at her trial for tax evasion in 1989).
Introduction Development is closely linked to tax revenue, to provide public goods and services such as transport infrastructure, health services and education, vital for reducing poverty in developing countries. Today, the world faces a growing problem in collecting the revenue to fund such public goods and services: tax competition is providing more and more opportunities for the wealthy to escape their tax obligations. As a result, the burden of taxation is shifting – wealthy individuals and transnational corporations (TNCs) benefit from tax havens and low-tax regimes throughout the world, whilst ordinary citizens and smaller domestic businesses bear the cost. Governments pursue increased taxes on consumption and smaller business, and policies such as privatisation and cuts in public services; responses that prevent the benefits of economic growth from reaching the poor. If left unchecked, these trends will be disastrous for development.
Treasure island?
Tax Havens:The New Shadow Economy Twenty years ago there were only a few tax haven jurisdictions, serviced by a handful of offshore professionals, and impractical for many businesses and individuals. That was before the worldwide dismantling of controls on the international flow of capital, and before the electronic communications revolution. Today, the offshore industry is a major global business, the home of an enormous shadow economy. • Half of all world trade appears to pass through tax havens,1 even though they account for only 3% of world GDP.2 This anomaly arises because transnational corporations record many transactions in tax haven jurisdictions solely to avoid tax, with little or no basis in the economic reality of their operations. • The value of assets held offshore, either tax-free or subject to minimal tax, is at least $11 trillion; over one-third of the world’s annual GDP.3 • Total funds passing annually through tax havens’ financial services sectors are broadly equivalent to the world’s total trade in goods and services (some $7 trillion).4 • The offshore industry as a whole is involved in about half of the world’s financial transactions by value.5 • Revenue losses to developing countries are at least $50 billion – around the same magnitude as annual aid flows.6 • The UK alone loses at least £20 billion a year from tax havens.7 • Companies formed for offshore purposes are now being formed at over 150,000 per year – there are well over 1million worldwide.8