The Panama Papers, Luxembourg Leaks and Paradise Leaks clearly show how large-scale tax evasion and money laundering is taking place through tax havens around the world.
Tax evasion through tax havens has become a global problem for developed and developing economies. International tax policy experts estimate that global tax revenue lost about 200$ billion a year as a result of the tax abuse. For example, a multinational corporation (MNE) pays about 20-30% tax on its income in non-tax havens, while Bermuda tax havens tax 0% on that income.
A tax haven can be defined as a tax jurisdiction that is primarily intended to encourage foreign investment. The loss of revenue from the tax haven is compensated by taking advantage of other sources of revenue. The Tax Haven Index includes Bermuda, the British Virgin Islands and the Cayman Islands – the largest UK overseas tax havens. International Index ranks Switzerland, the United States and the Cayman Islands as the top three places for private wealth.
Transfer of Profits
About $ 650 billion, or 40% of MNEs’ profits transferred to these tax havens each year. About 98% of this profit is converted by 10% of the world’s largest MNEs. Some of the popular multinationals involved in this profit transfer are Amazon, Google, IKEA, Nike and others. These MNEs earn more profits in tax havens as compare to when they declare their financial results as non tax havens.
Renowned economist Nicholas Shaxson estimates the lost global individual income tax is about a 200 billion a year. According to a Reuters report published on December 3, 2016, Starbucks, a US-based coffee house, has reported losses in its overseas operations in the UK over the past 13 years. On the other hand, all these years, it has been propagating to its investors about its high financial performance.
ALSO READ | Top tax havens around the world
How to control tax evasions ?
The most viable solution is to combine some or all of these: These must include transparency steps, low individual and corporate tax rates and removal of harmful tax practices. Sanctions and incentives for tax compliance, should use to stop companies shifting their profits to tax havens. Strong control over outflow of cash. Which will prevent multinationals based in those countries from shifting of profits into tax havens. They can also introduce withholding taxes on special risk based payments and transactions (like royalties and interests). No need of any global agreement for the application of above mentioned steps. Which will help for elimination of global issue of tax havens.
Tax Havens | Tax Evasion | Amazon | Google | UK | Profits | Money Laundering |
