08 Apr 2020
As emergency coronavirus medical and social programs lay bare economic and social deficiencies around the world, experts are calling for a more forceful tax response to the crisis.
The pandemic has highlighted global reliance on digital and pharmaceutical behemoths, and at the same time should shine a spotlight on their tax behavior, said Rasmus Corlin Christensen, a researcher with the International Centre for Tax and Development.
“Digital giants [and other companies] have been exploiting the international tax system, using its legal opportunities to reduce their tax burden and design their business model around minimizing their tax bill,” Christensen told the International Consortium of Investigative Journalists. “There is this mismatch between the important role that they play in our society and their tax behavior.”
Now that governments are facing an economic meltdown, they are confronted with a reality that many economists and tax justice advocates have been warning about for a long time: more than $800 billion in lost tax revenues, annually.
In 2016, the ICIJ-led Panama Papers investigation exposed the offshore financial dealings of politicians, companies and criminals, helping governments recover at least $1.2 billion in fines and back taxes by April 2019. But trillions of dollars remain hidden offshore.
Gabriel Zucman, an economist at the University of California, Berkeley, told ICIJ one of the clear lessons of the current economic dislocation was: “Tax havens are at the heart of the financial and budgetary crisis.”
Each year, he estimates, 40% of multinational profits are shifted to tax havens and 8% of personal wealth is stashed offshore.
As past ICIJ investigations revealed, some of those multinationals include tech companies like Facebook, Uber and Amazon that have become vital links across the world, as it scrambles to deal with the viral outbreak through mass quarantines.
The list continues with Apple, which said it’s producing protective gear for medical workers, medtech companies like Medtronic, which produces ventilators, and Johnson & Johnson, which is working on a vaccine in partnership with a U.S. state agency.
Experts say the paradox of the current crisis is that the revenue lost due to the actions of tax havens, and these and other corporate giants, could have been used to save lives and keep entire economies afloat as governments responded to the crisis.
Tax lessons from the coronavirus
Zucman said if there was one lesson we could take from the current economic crisis, it was: “Shoring up our public services starts with fighting tax avoidance and tax evasion more aggressively.”
When countries like Luxembourg offer “tailored tax deals to multinational companies, when the British Virgin Islands enables money launderers to create anonymous companies for a penny, and Switzerland keeps the wealth of corrupt elites out of sight in its coffers,” Zucman said, “they all steal the revenue of foreign nations.”
Developing countries are particularly vulnerable to such a system, with yearly tax losses estimated at around $200 billion, a figure roughly equivalent to the amount the United Nations predicts they will lose due to the coronavirus pandemic.
While often rich in natural resources, those nations routinely see their precious commodities extracted by multinationals that shift profits out to their offshore shell companies and deprive the source country of much-needed tax revenue.
Last year, ICIJ’s Mauritius Leaks investigation revealed how many corporations and wealthy individuals exploit so-called tax treaties to essentially divert tax revenue from poor nations back to their coffers. While legal, tax treaties often become a way to avoid paying tax in developing countries, which may not be able to compete with the incentives offered by tax havens like Mauritius and others.
“Sustainable, robust public responses to shocks require administrative capacity and tax resources,” Christensen said. “Tax avoidance and global tax competition, more broadly, strain the ability of countries to raise those resources.”
To level the playing field, member states of the Organisation for Economic Co-operation and Development (OECD) have been working on reforming the global tax system, which was set up in a pre-internet era.
By Scilla Alecci, ICIJ, 7 April 2020
Read more at the International Consortium of Investigative Journalists
RiskScreen: Eliminating Financial Crime with Smart Technology
You can claim CPD minutes for this content, by signing up to our CPD WalletFREE CPD Wallet