The desperate inequality behind global tax dodging. By Gabriel Zucman
More than €600bn is artificially shifted by multinationals to the world’s tax havens each year. Nearly 10% of the world’s wealth is held
offshore by a few individuals. The rest of us pay the price for this theft... Every country has the right to choose the form of taxation it wants. But when the Netherlands offers tailored tax deals to multinationals or Switzerland keeps the wealth of corrupt elites out of sight in its coffers, they steal the revenue of other nations.
Out of sight, a powerful industry has been developing since the 1980s in tax havens across the globe. By following the money, we can start to grasp the costs that these territories impose on the economies of other countries. The data that offshore centres publish is far from comprehensive, and our system for measuring household wealth and multinationals’ profits has many weaknesses. But it is improving, and by analysing the data carefully, we can detect consistent patterns and dissipate some of the secrecy that has for decades surrounded the activities of tax havens.
Let’s look first at
tax avoidance by big multinationals. In principle, these companies are supposed
to allocate profits across their various subsidiaries as if these offshoots
were independent entities, trading goods and services among themselves at the
prevailing market prices. In practice, however, the prices of intragroup
transactions are routinely manipulated by offshore accounting firms to make
their global profits appear in low-tax jurisdictions. Moreover, a growing
number of multinationals locate their algorithms, trademarks and logos in tax
havens to strip earnings away from countries, such as Britain, where they are
generated.
A case in point –
maybe the most spectacular– is Google Alphabet, Google’s parent company. In
2003, less than a year before its initial public offering in August 2004,
Google US transferred its search and advertising technologies to “Google
Holdings”, a subsidiary incorporated in Ireland, but which for Irish tax
purposes is a resident of Bermuda. Ever since then, all
the profits generated by these assets have ended up in Bermuda, after a
(tax-free) detour via the Netherlands – the infamous “double Irish Dutch Sandwich”. In 2015, Google Alphabet reported
$15.5bn in profits in Bermuda, where the corporate tax rate is a modest 0%. It
is as if every Bermuda resident (almost none of whom actually work for Google)
each generated $260,000 in profits for the company.
My colleagues Thomas
Tørsløv and Ludvig Wier and I have combined the data published by tax havens
all over the world to quantify the cost of the artificial shifting of profits.
Tiny countries such as Bermuda do not produce meaningful statistics. The EU’s
own tax havens – which are opaque in many ways, but at least have to comply
with the statistical guidelines imposed by Eurostat – do.
Our research shows
that six European tax havens alone (Luxembourg, Ireland, the Netherlands,
Belgium, Malta and Cyprus) siphon off a total of €350bn every year. This is
the amount of profit generated in mostly EU countries, which ends up –
after being manipulated by armies of accountants in Luxembourg or the
Netherlands – being taxed at bargain rates, typically between 0% and 5%.
Globally, our data suggests more than €600bn is artificially shifted by
multinationals to the world’s tax havens each year.
Who loses? By and
large, the US and the bigger European countries, where most of the
multi-nationals’ workers and consumers are located. Tax havens deprive the EU of
the equivalent of a fifth of the corporate tax revenue it currently collects. This
represents a cost of €60bn per a year. For the UK alone, the bill adds up to
about €12.7bn. Every country has the
right to choose the form of taxation it wants. But when the Netherlands offers
tailored tax deals to multinationals or Switzerland keeps the wealth of corrupt
elites out of sight in its coffers, they steal the revenue of other nations.
And while we lose, they win: through fees (sometimes a great influence on the
international stage), and even – the supreme irony – actual tax revenue…read more:
