30th November 2017
Gone are the times when multinationals could utilise tax havens without scrutiny. We’ve had the Panama Papers, the Paradise Papers and many more leaks, and there will be others to follow. The fact of the matter is, authorities, investigative journalists and even the general public have set their sights on tax havens and this secretive world is finding itself exposed globally. Indeed, in a recent feature for The Guardian, a university professor provided a useful insight into the realities of tax havens.
The scale of global tax havens
It’s been almost impossible to quantify the exact amount of money being syphoned into tax havens given the on-going secrecy they have been known for. However, with growing interest in clamping down on the use of offshore havens and increasing leaks of data comes greater investigations from a number of sources. In the Guardian article, Gabriel Zucman, assistant professor of economics at University of California, Berkeley, shared an insight into research he and his colleagues had undertaken in order to better grasp the scale of tax haven usage. What they found presents a staggering picture.
Looking at just six havens – Ireland, Luxembourg, the Netherlands, Belgium, Malta and Cyprus – a total of €350 billion is directed through these locations each year, profit which is in most cases from European countries. This is then taxed at extremely low rates in each haven, usually between 0% and 5%. The team of researchers suggested that more than €600 billion is artificially moved to global tax havens by multinational corporations per annum.
When we take a look at the impact this has on other countries, these havens cost the EU around a fifth of the corporate taxes it collects, the equivalent of around €60 billion each year. In the US, multinational corporations declare around 63% of all foreign profits in six key havens.
It’s safe to assume that most people are aware that tax havens are impacting money collected by governments worldwide, but these numbers certainly demonstrate that the sheer scale of this financial impact is perhaps greater than many would think.
Aside from the financial impact the use of tax havens has on other countries, this activity is also increasing inequality between richer and poorer communities. When multinationals dodge taxes, the money lost has to be made up by higher taxes on those on lower-incomes. This in turn drives down public spending.
These havens also enable the ultra-rich to hide the extent of their wealth from the likes of the taxman. Zucman revealed that around 10% of global GDP is held offshore by wealthy individuals, and almost half of this belongs to households with a net wealth in excess of $50 million – that’s just about 0.01% of the population of advanced economies.
So, when it comes to tax avoidance, it’s safe to say only a small group of people benefit, and those who don’t certainly want to see an end to this activity.
Difficult to manage
However, while there are on-going calls to end the use of tax havens to avoid paying out in relevant countries, the issue is incredibly complex and difficult to resolve. As Zucman pointed out, when one loophole is close, another is opened. Light is being cast on this issue, though, and with more and more schemes being uncovered, it is becoming increasingly difficult for multinationals and wealthy individuals to avoid scrutiny over their taxes.
We might be a long way off a complete solution for tackling tax havens, but progress is being made. For recruitment firms working with contractors internationally, the risks associated with employment tax and compliance are increasing. Partnering with an expert in contractor management solutions is increasingly becoming a must have, so why not get in touch today?