New research show that the UK has caused the most damage to the global corporate tax system by using its territories and crown dependencies to create successful tax havens.

Why should I care about corporate tax?

You pay your income tax and NICs, don’t you? If you’re in business, you are also possibly paying business rates, VAT and corporation tax. So why should multinational companies escape paying their corporate tax? We’re all enraged when we read the stories of Starbucks, Google or Amazon dodging UK tax. Because if they don’t pay their fair share, then the money has to be found somewhere else. Possibly by raising our taxes.

This is trickier to understand than other tax matters. And it does seem to be nothing to do with us. But this is a global issue that greatly impacts the lives of each individual. The key to this is to step outside out country’s tax situation and take a world view. That’s what this research has done.

Where has the research come from?

Origins of information are incredibly important, so we’ll start here. This new research is from the Tax Justice Network. They are best described by their About Us page:

“The Tax Justice Network is an independent international network launched in 2003 (see our history here). Our core mission is to ‘change the weather’ on a wide range of issues related to tax, tax havens and financial globalisation. We push for systemic change. We could very loosely be described as a fast, flexible, expert-led, activist think tank. We are not politically aligned.”

Their staff are based all round the world and they have an impressive list of international senior advisers that provide counsel.

One of the research’s results is the compilation of a ‘Corporate Tax Haven Index’, which rates countries according to how easy they make corporate tax avoidance. Basically, how good they are at being a tax haven.

How does the Corporate Tax Haven List work?

Countries are rated using a calculation based on two factors that assign a score to each country:

  • Haven score: how easy its tax and other financial regulations make it for multinational companies to hide money there. Looking at 20 different elements, grouped into five equally weighted categories: Lowest Available Corporate Income Tax Rate, Loopholes and Gaps, Transparency, Anti-Avoidance, Double Tax Treaty Aggressiveness
  • Scale Weight: each country’s share of global activity. (How much money goes through each country.) This gives the proportion of global corporate tax that is at risk of being avoided.

A mathematical equation is used to combine these to get the Haven Score. These are published in a rank order, to clearly show which countries are more involved in enabling multinationals to avoid tax.

The 2019 Corporate Tax Haven Index is based on research into 64 countries.

2019 Top Twenty Tax Avoidance enabling jurisdictions are:

  1. British Virgin Islands
  2. Bermuda
  3. Cayman Islands
  4. Netherlands
  5. Switzerland
  6. Luxembourg
  7. Jersey
  8. Singapore
  9. Bahamas
  10. Hong Kong
  11. Ireland
  12. United Arab Emirates
  13. United Kingdom
  14. Mauritius
  15. Guernsey
  16. Belgium
  17. Isle of Man
  18. Cyprus
  19. China
  20. Hungary

The UK may be 13th in this list, but the research shows that it is the “tax haven network” of Crown Dependencies and Overseas Territories that leads to the conclusion that the UK is the worst offender.

Eight out of ten of the jurisdictions with the highest tax haven scores are part of this UK network:

  • British Virgin Islands: Top of the Corporate Tax Haven Index
  • Bermuda: 2nd
  • Cayman Islands: 3rd
  • Turks and Caicos Islands
  • Anguilla
  • Isle of Man: 17th
  • Jersey: 7th
  • Guernsey: 15th

What other conclusions are there?

Chief executive at the Tax Justice Network, Alex Cobham, summarises their research:

“The hypocrisy revealed by the Corporate Tax Haven Index is sickening. A handful of the richest countries have waged a world tax war so corrosive, they’ve broken down the global corporate tax system beyond repair. The UK, Netherlands, Switzerland and Luxembourg – the Axis of Avoidance – line their own pockets at the expense of a crucial funding stream for sustainable human progress. The ability of governments across the world to tax multinational corporations in order to pay teachers’ wages, build hospitals and ensure a level playing field for local businesses has been deliberately and ruthlessly undermined.

“When our laws for taxing global corporations stop working, the global economy stops working for the vast majority of us. All around us we see inequalities go unaddressed, political extremism unchallenged and democratic institutions faltering – and the thread that runs through it all is a failure to defend progressive taxation. To curtail the corporate tax avoidance that costs hundreds of billions of dollars every year, governments must finally deliver international rules that ensure profits are declared, and tax paid, in the places where real economic activity takes place. Corporations should be taxed where their employees work, not where their ledgers hide.”

As reported by The Guardian, Shadow Chancellor John McDonnell said: “The only way the UK stands out internationally on tax is in leading a race to the bottom in creating tax loopholes and dismantling the tax systems of countries in the global south. The rot has to stop. While Tory leadership hopefuls promise tax giveaways for the rich, a Labour government will implement the most comprehensive plan ever seen in the UK to tackle tax avoidance and evasion.”

Toby Quantrill, Christian Aid’s global lead on economic justice, told The Independent:

“The Corporate Tax Haven Index is a critical piece of work that deepens our understanding of just how broken the global economic system really is. It highlights the role of the UK and its network of Overseas Territories and Crown Dependencies in undermining the ability of other countries, including some of the poorest in the world, to provide for the most basic rights of their citizens. This is a problem that Christian Aid first highlighted more than 10 years ago, and which has been widely acknowledged, yet remains fundamentally unsolved.”

The other side…

Obviously, there is another side to the story. Those jurisdictions that are identified on this list as tax havens have a good reason for doing do – money. They are unlikely to support a global crackdown on corporate tax avoidance by multinationals.

The Cayman News Service report shows this different viewpoint: “While the findings are likely to be dismissed by the territories’ governments and the offshore finance industry, this research gains traction with ordinary people in onshore countries who must pay their own taxes but watch as massively profitable multinationals like Google and Amazon pay almost none. And it is public sentiment on perceived unjust tax systems that leads governments to pledge crackdowns. This has seen the UK insist on the implementation in its territories of policies like beneficial ownership registers before they become the global standard. The UK is likely to face a general election before the end of this year, and if the Labour Party wins, Cayman and other territories could face even greater imposition.”

It would seem that motivation for rectifying this global tax haven situation is based on that old familiar balancing act: the needs of the many versus the needs of the few.