The Human Truth Foundation

Tax Evasion

By Vexen Crabtree 2021

#crime #democracy #economics #governance #inequality #internationalism #multinationals #tax_evasion

Civilisation relies upon taxation. Workforces are educated through tax. Nations are defended. The rule of law which makes business possible, is made secure through state apparatus. The roads on which all logistics rely, the national infrastructure that supports electricity and food suppliers, the judicial system: It is all funded through tax. But not all people pay fair. The United Nations say that 46% of the world's wealth is owned by the richest 1% of the population1, and economists think somewhere between 10% and 50% of it all is held in Tax Havens2. Big businesses and the rich can avoid paying billions upon billions of tax by exploiting loopholes3, forcing the poor to pay a much higher proportion into national incomes. They support the same financial schemes that allow organized criminals, drug lords and violent gangs to launder their money.

Some of the most well-known corporate tax evaders include Nike2 and tech companies4 like Amazon, Facebook, Google, Netflix and Apple. They are supported by some countries that shield tax havens from tax laws; in particular, Panama2, the Netherlands2,5, Malta2, the Cayman Islands2, the British Virgin Islands2, the USA's states of Delaware, Wyoming, Nevada and South Dakota; Mauritius2, Bermuda2 and Ireland6.

The complexity of taxes, and the international flows of money, mean that it has moved beyond the ability of any government to fix the problem of tax evasion on its own7,8,9.


1. Tax Evasion, Tax Avoidance, Tax Havens

#cayman_islands #tax_evasion

The phrase Tax Avoidance covers the reluctant fact that the rich largely avoid paying taxes through legal means10 - loopholes - which mostly result from the immense complexity of multinational finance. Tax Evasion is when people - normally somewhat less rich - try to accomplish the same thing, but don't manage to do so legally11. In both cases, the intent is the same, and it's right to use the terms synonymously.

Tax Havens are the key method by which the rich avoid taxes, and by which criminals and organized crime syndicates hide their money from authorities. These are places where the law permits 'shell companies' to operate without being substantially present, either in terms of real trade or staffing. Smoke and mirrors, to enable corporate secrecy.

The core of Tax Havens are shell companies or offshore companies. Moving corporate finances to offshore shell companies, with a board of directors mostly made up of foreign nationals, allows wealth to be moved around silently and without taxation. It often requires anonymity, so that the boards of directors are comprised of fake people. E.g., there is a single building in the Cayman Islands that is host to 19,000 companies2.

2. The Rich

#angola #iceland #nigeria #pakistan #tax_evasion

The rich, who can afford to pay more tax, also have the ability to pay much less2. They fall victim to the mentality that they must accumulate as many riches as possible, in a battle and a race against their peers. This means paying as little tax as possible. Being kind, it is possible to imagine that many of them don't understand the harm that they are doing. But the systems that they use - the accountants and those who facilitate shell companies - are the same people that criminals and violent gangs use to launder money. It's all the same dark finance. Putting it unkindly, it is possible to imagine that many of them simply don't care about the negative consequences of the way they use their financial skills.

Politicians, like Iceland´s former prime minister, Sigmundur David Gunnlaugsson, and Nigeria's former senate president, Bukola Saraki, have concealed investments or luxury homes with the help of shell companies. So have their children. Notables include the son and daughter of former Pakistan prime minister, Nawaz Sharif, and Isabel dos Santos, the billionaire daughter of former Angolan strongman president, Jose Eduardo dos Santos.

Drug lords and ladies, bank robbers and arms traffickers, mafia kingpins and queens and bribe takers and makers also use shell companies to obscure their identities and conceal money, assets and illicit activities.

International Consortium of Investigative Journalists (2020)2

The wealthy keep the money to build intergenerational fortunes, creating a new global aristocratic class and exacerbating the divide between the global haves and have-nots.

International Consortium of Investigative Journalists (2020)2

3. Organized Crime

#crime #tax_evasion

Drug lords and ladies, bank robbers and arms traffickers, mafia kingpins and queens and bribe takers and makers also use shell companies to obscure their identities and conceal money, assets and illicit activities.

International Consortium of Investigative Journalists (2020)2

4. Multinationals

#bermuda #ireland #multinationals #netherlands #panama #philippines #tax_evasion #USA

Large multinationals excel at tax evasion. They do it by exploiting holes between tax jurisdictions3 and by making their accounting artificially complicated4. Large companies can easily move production, employee numbers, management, assets and finance from one place to another (especially on paper). For example, in the USA, multinationals have to declare where profits come from. They lie, and, say that a full 35% of their profits come from just three places: Bermuda, the Netherlands and Ireland2. This outrageous financial distortion sheds some light on the scale of tax evasion being practiced as a matter of routine.

Nike became infamous for its tax avoidance strategies2. The big six Silicon Valley companies of Amazon, Facebook, Google, Netflix, Apple and Microsoft have avoided paying anything like fair rates of tax, according to transparency campaigners Fair Tax Mark4. For example, over a decade Amazon achieved a revenue of $960.5 billion but paid just $3.4 billion in tax. They say, of course, that they pay what they owe. But fancy accounting and the hiding of profits means that they owe very little4.

Apple organizes itself so that most of its huge profits are not being registered anywhere in the world for taxation. Under its chief, Tim Cook, it was caught out in 2013 for using loopholes in Ireland. He declared that "we pay all the taxes we owe, every single dollar". The lie was in the detail: Because they used loopholes, they didn't technically owe much tax at all. It was easier to get Ireland to change its laws than it was to get Apple to pay tax. As a result, Apple had to change its ways. And I don't mean that they started paying tax - they moved their money elsewhere, and continued to evade.

Now leaked documents, called the Paradise Papers [show that] despite its CEO´s public rejection of island havens, [Panama is] where Apple [first] turned as it began shopping for a new tax refuge. [...] In the end, Apple settled on Jersey, a tiny island in the English Channel. [... From 2014] under this arrangement, the MacBook-maker has continued to enjoy ultra-low tax rates on most of its profits and now holds much of its non-U.S. earnings in a $252 billion mountain of cash offshore.

International Consortium of Investigative Journalists (2020)12

Tax evasion and avoidance are made easier by insufficient information, by the rise of large digital companies operating across tax jurisdictions and by inadequate interjurisdictional cooperation. In these policy domains international collective action must complement national action.

United Nations Human Development Report (2019)3

Multinational companies use the extra cash to reward shareholders and edge out smaller competitors.

International Consortium of Investigative Journalists (2020)2

Export Processing Zones is the name given to the commercial land where governments concede tax breaks to multinationals. The factories within EPZs are synonymous with what are popularly known as "sweatshops".

Book CoverThe phrase "tax holiday" is oddly fitting. For the investors, free-trade zones are a sort of corporate Club Med, where the hotel pays for everything and the guests live free, and where integration with the local culture and economy is kept to a bare minimum. [...] Zero-risk globalization. Companies just ship in the pieces of cloth or computer parts - free of import tax - and the cheap, non-union workforce assembles it for them. Then the finished garments or electronics are shipped back out, with no export tax. [...] The Cavite Zone, for example, is under the sole jurisdiction of the Philippines' federal Department of Trade and Industry: the local people and municipal government have no right even to cross the threshold.

"No Logo" by Naomi Klein (2004)13

5. National Governments

#bermuda #british_virgin_islands #cayman_islands #guernsey #ireland #jersey #malta #mauritius #netherlands #niue #panama #UK #USA #vanuatu

Some small nations exist almost purely as tax havens; whereas some countries (such as the UK14) are responsible for territories that act as tax havens. Some of the most notorious places responsible for hiding the moneys of the rich, the powerful, and the corrupt; are Panama2, the Netherlands2,5, Malta2, the Cayman Islands2, the British Virgin Islands2,14, Guernsey14 and Jersey14, the USA's states of Delaware, Wyoming, Nevada and South Dakota, Mauritius2, Bermuda2 and Ireland6.

Source:The Independent (2019 May 28)5

An index published [in 2019] by the Tax Justice Network found that the UK has single-handedly done the most to break down the global corporate tax system which loses an estimated $500bn (£395bn) to avoidance. [...] Tax haven territories linked to Britain are responsible for around a third of the world´s corporate tax avoidance risk – more than four times the next greatest contributor, the Netherlands.

The Independent (2019 May 28)5

The abuses are clear, but the governments involved do not want to act. even when the evidence is screaming out that abuses are in progress - there is a single building in the Cayman Islands that is host to 19,000 companies2: Only when the public outcry is loud enough to force companies to change, do the governments belatedly patch up their legal systems.

Some tax havens, like Niue and Vanuatu, have cleaned up their act under international pressure while others, like Dubai, are emerging as new hotspots of illicit wealth.

International Consortium of Investigative Journalists (2020)2

6. EU Responses

#british_virgin_islands #EU #guernsey #internationalism #ireland #jersey #tax_evasion #UK

The complexity of taxes, and the international flows of money, mean that it has moved beyond the ability of any government to fix the problem of tax evasion on its own7,8,9. The governments of the EU bloc lose about €1 trillion annually to tax evasion9 and although the EU has made several attempts to harmonize tax laws and therefore make it harder for criminals and corporations to hide money, some member states have resisted these moves. Most notably, Ireland6; and the UK, which has shielded several of its own tax havens14,6,5. Within a month of the UK leaving the EU, the European Parliament voted (in 2021 Jan) to add the British Virgin Islands, Guernsey and Jersey to its tax havens blacklist14.

Several well-established EU norms and rules on tax transparency related to the shoring-up of weak laws amongst member states, and the sharing of information for the ends of ending tax abuses.