Every year, the world is losing over US$427 billion in fiscal resources to international corporate tax abuse. On average countries are losing the equivalent of 9.2% of their health budgets to tax havens every year.
In Australia’s case, the figure is the equivalent of 4.87% of what the country spends on health, an amount that is the equivalent of the salaries for almost 54,000 nurses.
Of the $427 billion, multinational corporations are to blame for nearly $245 billion, thanks to the practice — mostly legal — of “profit-shifting”, according to a new report by the Tax Justice Network, Public Services International and the Global Alliance for Tax Justice.
Multinational digital companies are having a very profitable COVID thanks to the shift to online shopping, working, socialising and schooling. They are also the champions of tax avoidance. Because they are dematerialised, the GAFA (Google, Apple, Facebook and Amazon) are able to exploit the loopholes in the international tax system more easily.
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Take Amazon. It reported that its net sales increased by an impressive 40% in the second quarter of its fiscal year compared to the same time last year, totalling US$88.9 billion.
By manipulating transactions between their subsidiaries, they are reporting record profits in tax havens and very low ones — when not losses — in countries with higher corporate taxes, even though they are actually operating extensively in the latter.
(Wealthy individuals have absconded with the astonishing remaining $182 billion, through the hiding of undeclared assets and incomes in tax havens, beyond the reach of the law.)
Already scandalous, this situation has become more unbearable than ever while the global economy is plunging into the worst recession since the Great Depression.
In its latest report on the East Asia and Pacific region, the World Bank predicted an annual contraction of activity between 3.5% and 4.8%, with the emergence of a class of “new COVID poor” for the first time in 20 years.
Even with the inclusion of China, which has seen a better-than-expected recovery from the pandemic, the organisation expects the region to grow between 0.3% and 0.9% this year, the lowest rate since the 1960s.
As everywhere in the world, building back will have a cost. It means more money for public services, which have been hard hit by this crisis, especially the health and education sectors.
But it will also require countries to spend more on boosting employment and helping small businesses, while investing in preventing future pandemics and fighting climate change.
It’s a perspective that sows panic in many governments, which speak of empty coffers and are instead tempted by austerity programmes.
It’s time for those who have the most to pay the most. The Organisation for Economic Co-operation and Development (OECD) has been promising for years to put an end to the aberrations that allow the richest individuals and multinationals to escape their tax obligations.
But a misplaced sense that national interest is served by protecting multinationals has prevailed over global public needs, and the publication, last month, of the OECD’s complex and disappointing proposals showed that no major changes are expected in the coming months.
In this context, governments should move regionally or unilaterally to introduce interim measures to raise immediate tax revenues, as suggested by the Independent Commission for the Reform of International Corporate Taxation (ICRICT), of which I am a member.
They should, for example, apply a higher corporate tax rate to large corporations in oligopolised sectors with excess rates of return.
And since multinationals have owners — even if they are often in hiding — there is also an urgent need to rethink the taxation of individuals in a more progressive way.
Indeed, the world’s billionaires did very well during the pandemic, increasing their wealth by more than a quarter (27.5%) from April to July, as unveiled recently in a report by Swiss bank UBS.
It also means establishing comprehensive public registers of the beneficial owners of companies, trusts and foundations to stop tax evasion from flourishing.
From multinational corporations to the wealthiest individuals, governments now have the technical means to track down tax evaders. It’s time for them to demonstrate their political will.
The costs of the pandemic are already being borne disproportionately by the poorest and most vulnerable. The economic burden of rescue packages should not fall on them as well.
Wayne Swan is the former treasurer and deputy prime minister of Australia.
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Seriously good documentary on finances and profits and off shore havens. Better than the Panama Papers. On YouTube – The Spiders Web: Britain’s Second Empire. Actually very disheartening to see how much money goes offshore. Lawyers and accountants (with tacit govt support) know how to rort all systems for their clients. All so legal, but still hidden.
Thanks old girl – looks good.
Although ‘immigration’ got the EU Brexit vote over the line to support citizens’ ‘sovereignty’, the real and intended winners were those London based entities helping money laundering and tax avoidance; cross border transactions the EU is starting to monitor and regulate more.
Yep, very high quality documentary.
When Thatcher abolished british industry the idea was to become the financial centre for Europe.
The enabling of tax havens was implicit and happily augmented for all comers, petrodollars, African dictators’ blood diamonds, ex-sov oligarchs – no lucre was too filthy.
Excellent article Wayne and very much enjoyed your recent online discussion with Nobel prize winner, Joe Stigletz and Richard Deniss. If you haven’t come across Richard G Wilkinson’s groundbreaking research re comparisons of countries with regressive and progressive tax regimes, I highly recommend.
Tax is a Statute of Government – if the corporations are following the statute why blame the corporations for following the law. If the Statute – is defective it is the fault of the writers of the Statute – the Government -not the legal taxpayers. I am tired of hearing corporations are not paying the fair share of tax.
And members of governments often have a vested interest in the continuation of the current system. What’s more, that interest frequently increases over the duration of individual MPs’ incumbencies. Just look at the increase in the tax advantages they have availed themselves of while they are sitting (and voting) members: off-shore investments, negative gearing, family trusts, investments of which they are hidden beneficiaries etc. as well as land speculation).
And yet these are the very people we rely on to level the playing field!
I’m tired of govt’s maintaining regressive tax systems which are designed to favour large corporations and the sociopaths that manage them.
Of course large corporations have no iundue / disproportionate influence over the framing of legislation. And how do you explain the decriminalisation of bank fraud (eg LIBOR scandal) or the reluctance of the govt to effectively address global warming ? Keep in mind most of the big miners in Australia (BHP etc) are on average 80+% o’seas owned as are the “big 4” banks – 70+% o’seas owned.