Ending the Era of Tax Havens: Why the UK government must lead the way | Tax Haven

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The gap between the rich and the rest is growing. Tax havens are at the heart of the inequality crisis, enabling corporations and wealthy individuals to dodge paying their fair share of tax. This prevents states from funding vital public services and combating poverty and inequality, with especially damaging effects for developing countries. The UK heads the world’s biggest financial secrecy network, spanning its Crown Dependencies and Overseas Territories and centred on the City of London – but this in fact provides an unparalleled opportunity to help end the era of tax havens. As the UK Prime Minister prepares to host the anti-corruption summit in May, this briefing paper outlines how tax havens fuel the inequality crisis which leaves poor countries without the funds they need, the UK’s role in the global tax haven system, and what the government can do about it.
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  OXFAM BRIEFING PAPER 14 MARCH 2016 www.oxfam.org  Tax havens like the Cayman Islands (one of the UK’s Overseas Territories) are fuelling inequality which is keeping children like Morgan in poverty. Photos: Shutterstock (left), Sam Tarling/Oxfam (right). ENDING THE ERA OF TAX HAVENS Why the UK government must lead the way The gap between the rich and the rest is growing. Tax havens are at the heart of the inequality crisis, enabling corporations and wealthy individuals to dodge paying their fair share of tax. This prevents states from funding vital public services and combating poverty and inequality, with especially damaging effects for developing countries. The UK heads the world’s biggest financial secrecy network, spanning its Crown Dependencies and Overseas Territories and centred on the City of London – but this in fact provides an unparalleled opportunity to help end the era of tax havens. As the UK Prime Minister prepares to host the anti-corruption summit in May, this briefing paper outlines how tax havens fuel the inequality crisis which leaves poor countries without the funds they need, the UK’s role in the global tax haven system, and what the government can do about it.    2 SUMMARY The UK government has played a significant role in the fight against global poverty. In 2015, the world embarked upon the most comprehensive attempt ever to fight poverty. The new Sustainable Development Goals (SDGs) go far beyond their predecessors, the Millennium Development Goals (MDGs), in both ambition and scope. Much of the framework for the SDGs draws on the recommendations of a high-level panel co-chaired by UK Prime Minister David Cameron, including two central elements. First, the SDGs recognise the fundamental importance of challenging inequality if poverty is to be addressed; and second, the framework makes clear that domestic taxation, rather than aid, is the key source of finance to deliver progress. The UK is widely recognised as having led the way among bilateral donors on effective aid commitments to support the MDGs. At the same time, the Department for International Development (DFID) made important commitments to improve both knowledge and capacity in the field of tax (reinforced in the Addis Tax Initiative in 2015). And in 2013, the UK-hosted summit of G8 countries provided clear global leadership against the scourge of tax havens and corporate tax dodging. With its hosting of an international anti-corruption summit in May, the UK is uniquely positioned to take the fight against global poverty to the next level by confronting tax dodging. Tax havens are estimated to be costing poor countries at least $170bn in lost tax revenues every year. The recent furore over Google’s tax payments in the UK has brought tax dodging back once again to the top of the political agenda. While corporate tax dodging affects all countries, including the UK, developing countries are hardest hit by this tax abuse. The UK government’s response must be to implement solutions that not only benefit the UK but all countries hit by tax dodging. Tax havens are jurisdictions or territories which allow non-residents to minimise the amount of taxes they pay where they perform substantial economic activity. It is common to make a distinction between ‘secrecy  jurisdictions’, which provide the necessary secrecy for individuals or entities to avoid paying tax, and ‘corporate tax havens’, which adopt particular rules that enable corporations to avoid paying their fair share in other countries. For the purposes of this paper, the terms ‘secrecy  jurisdiction’ and ‘tax haven’ are largely used interchangeably. ‘Secrecy jurisdictions’, and the financial secrecy they promote, are a major driver of inequality and corruption – both of which undermine attempts to end poverty and suffering. Secrecy jurisdictions offer anonymous company ownership, which is a consistent feature of international corruption cases, including money laundering and the theft of public assets.   3 They also refuse to exchange financial information with other countries, in order to promote offshore tax evasion of the type revealed by the Swiss Leaks investigation – and which is estimated, at a minimum, to involve $7.6 trillion of individuals’ undeclared assets. On top of this, a range of failures in corporate transparency facilitate the most harmful corporate tax avoidance, as Lux Leaks laid bare. Secrecy also obscures the true extent of inequality, reducing public awareness of the scale of the problem and the damage caused, and leading policy makers to believe that resources are scarcer than they actually are. The overall effect is to reduce potential revenues that can be used to fund vital public services, which often leads policy makers to rely instead on indirect taxes such as those on consumption of goods and services – both of which are likely to hurt people at the bottom of the distribution. They also tend to make gender inequalities worse, because women are disproportionately over-represented in the lower part of the distribution. Efforts to curtail poverty are inevitably undermined. Tax haven secrecy also undermines a range of other policies designed to support good governance for the wider benefit of societies – and to resist capture by self-interested elites. Financial secrecy facilitates grand corruption, money laundering and the hiding of political conflicts of interest. Last but far from least, tax haven secrecy has a significant impact on the ability of financial regulators to identify and mitigate risk in capital markets. This was an important contributory factor to the global financial crisis that began in 2007 and continues to cast a long shadow.  And so the UK’s anti-corruption summit is extremely timely. Hosted by UK Prime Minister David Cameron, the anti-corruption summit provides an opportunity to dismantle the financial secrecy that threatens the SDGs’ progress against poverty before it even begins. The UK is especially well placed to show leadership here because it controls or directly influences by far the largest network of tax havens in the world. This network, encompassing the UK’s Crown Dependencies and Overseas Territories and centred on the City of London, is estimated to account for nearly a quarter of global financial services provided to non-residents within a jurisdiction. Taken together, this UK entity would sit at the top of the ranking in the Tax Justice Network’s Financial Secrecy Index, which ranks the scale and depth of financial secrecy by  jurisdiction. For many of these jurisdictions, the UK retains ultimate sovereignty – and so Her Majesty’s Government has not only a historic responsibility but a unique opportunity to help end the era of tax havens. Success in these areas could be transformative in the fight against global poverty and inequality.  4 The UK government should act unilaterally in the following areas: Corporate tax ã  Require multinational companies to make country-by-country reports publicly available for each country in which they operate and support efforts at both European and international levels to achieve this standard globally. ã  Conduct a rigorous and independent ‘spillover analysis’ of UK corporate tax rules. Transparency of beneficial ownership ã  Extend the UK's public registry of beneficial ownership to trusts and other legal entities. ã  Require the UK’s Crown Dependencies and Overseas Territories to introduce public registries of beneficial ownership. Information exchange ã  Exchange tax information automatically on a comprehensive, multilateral basis, and without requiring reciprocity from lower-income countries. ã  Publish aggregate statistics showing the size and srcin of the assets in UK financial institutions. ã  Make clear that information provided can be used in anti-corruption efforts. ã  Require the Crown Dependencies and Overseas Territories to carry out each of these measures. ã  Ensure that UK government departments and contractors do not use tax havens. City of London Corporation ã  The government should mandate an independent, fully public review of the functioning and operations of the City of London Corporation.  At a global level, the UK government should support international efforts to end the era of tax havens. These should include the following:   ã  Begin a second generation of inclusive global tax reforms to fix the broken international tax system. ã  Set up integrated, binding, exhaustive and objective monitoring exercises of tax havens at the global level, in order to assess the risks posed by these jurisdictions. These exercises should be held regularly and their outcomes should be made public. ã  Increase transparency around tax rulings and the granting of tax incentives.
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