We have exposed a massive amount of wealth being hidden away by the super-rich — which they pay no tax on at all.
The Tax Justice Network was set to publish a report on Thursday this week showing that $255 billion is lost globally in tax each year.
An estimated $11.5 trillion ($11,500 billion) in assets is held offshore by “high net worth individuals” — people who have at least $1 million in liquid financial assets.
Because of the way tax havens work it is difficult to trace who owns this wealth. Tax havens operate largely with smoke and mirrors.
Tax regimes are national but modern companies are global. Tax havens operate in a parallel world — where individuals squirrel away money in offshore accounts where they will not have to pay tax.
Legally speaking the individual or company must declare any assets held offshore, and pay tax in their country of residence. But with almost no reporting between countries of the assets held in their banks by non-residents, this simply isn’t enforceable.
Britain has taken the lead in the creation of tax havens. Of the world’s 72 major tax havens, 35 are linked to Britian. Many are crown dependencies, such as Jersey.
The City of London is also a major tax haven, which offers special treatment to non-residents. For example Mohammed al-Fayed negotiated the amount of tax he paid with the Inland Revenue. Could you imagine the man on the street being able to negotiate their taxes, to say, “I’ll pay 5 percent this year”?
The situation is becoming dramatically worse, especially for poorer countries, where the small layer of very rich people hold all their assets offshore.
In Argentina, for example, almost all the high net worth individuals have moved their assets offshore, leaving Argentina with virtually no tax base among the rich.
If you accept that tax is needed—as most people do—it should be based on a scale of what people can afford. But since the late 1970s the burden has fallen on the middle to low earners—with those at the top simply removing themselves from the process.
The amount of money lost each year in taxes globally is staggering, and this study only looks at assets, not profits. The Tax Justice Network is currently looking at the tax gap in Britain—the difference between what companies should be paying and what they actually are paying.
If the $255 billion of lost taxes were collected each year it could do an awful lot. A huge emphasis is being put on the Make Poverty History campaign by the British government at the moment, and this money would go a long way to solve problems in the Third World.
Two years worth of these lost taxes could fund Gordon Brown’s request for an additional $50 billion a year in aid to the developing world for a whole decade. If $255 billion was given in aid every year from 2002 then, by the end of 2015, global poverty could be permanently eradicated.
Overall, the cost of tax havens to the global economy is likely to be considerably higher than $255 billion because the figure does not include tax losses caused by corporate profits hidden in tax havens.
Gordon Brown and the Commission for Africa are ideally placed to act on offshore tax avoidance, since so many of the banks and tax havens that facilitate these processes have British links.
If Gordon Brown is serious about wanting to tackle global poverty, he should take a lead in pushing for an end to all aspects of the offshore secrecy that makes this possible.
The Tax Justice Network is calling for action to eliminate cross-border tax evasion and limit the scope for tax avoidance, so that large corporations and wealthy individuals pay tax in line with their ability to do so.
We are also campaigning to remove the tax and secrecy incentives that encourage the outward flow of investment capital from countries most in need of economic development.
For more information go to www.taxjustice.net