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Africa/Global: Follow the Money

AfricaFocus Bulletin
November 11, 2015 (151111)
(Reposted from sources cited below)

Editor's Note

"New research from the Tax Justice Network shows that the gap between where companies pay tax and where they really do their business is huge ... even developed countries with state-of-the-art tax legislation and well-equipped tax authorities cannot stop multinationals dodging their tax without a thorough reform of the global tax system. ... [these practices have] a relatively greater impact on developing countries, whose public revenues are more dependent on the taxation of large businesses."

Two new reports, briefly excerpted in this AfricaFocus Bulletin, shed light on the complex global systems of tax evasion and tax avoidance which are draining resources from public needs in both rich and poor countries. While giant companies and the super-rich move their money around the world in secrecy, the system is obscured both by secrecy and by deceptive language.

Thus, according to the highly regarded and well-publicized Corruption Perception Index from Transparency International, Switzerland, Hong Kong, the United States, Singapore, Luxembourg, Germany, and the United Kingdom are all among the 20 "least corrupt countries" in the world. Yet the less-well-known Financial Secrecy Index, from Tax Justice Network, also places them among the top 15 "secrecy jurisdictions" (also known as "tax havens") which serve as the essential "enablers" of corruption and of illicit financial flows by multinational corporations.

Similarly, there is no doubt that Africa and other developing regions are hardest hit by this global tax abuse, while they have the most urgent needs for investment in public goods. But a new report by the Global Tax Justice Network and other civil society groups shows that rich countries themselves are also major losers, as corporations shift profits from one rich country to another (as well as to smaller jurisdictions fitting the stereotype of "tax havens"). In 2012 U.S. multinationals alone shifted between $500-$700 billion dollars out of the country, or roughly 25 percent of their annual profits.

For previous AfricaFocus Bulletins on tax justice and related issues, visit

++++++++++++++++++++++end editor's note+++++++++++++++++

Financial Secrecy Index 2015 reveals improving global financial transparency, but USA threatens progress

Tax Justice Network

Press Release

Nov 2, 2015

European Union moves furthest with reforms; USA causes great concern; and developing countries are (as usual) reaping few benefits.

Today the Tax Justice Network launches the 2015 Financial Secrecy Index, the biggest ever survey of global financial secrecy. This unique index combines a secrecy score with a weighting to create a ranking of the secrecy jurisdictions and countries that most actively promote secrecy in global finance.

Most countries' secrecy scores have improved. Real action is being taken to curb financial secrecy, as the OECD rolls out a system of automatic information exchange (AIE) where countries share relevant information to tackle tax evasion. The EU is starting to crack open shell companies by creating central registers of beneficial owners and making that information available to anyone with a legitimate interest. The EU is also requiring multinationals to provide country-by-country financial data.

But these global and regional initiatives are flawed and face sabotage by lobbies that have already weakened them. Secrecy-related financial activity risks being shifted to other areas such as the all-important trusts sector, where no serious action is being taken despite promises made by the G8 in 2013, and shell companies, where many secrecy jurisdictions such as Dubai, the British Virgin Islands or Nevada in the U.S. are refusing to open up.

The FSI Top 10

  1. Switzerland
  2. Hong Kong
  3. USA
  4. Singapore
  5. Cayman
  6. Luxembourg
  7. Lebanon
  8. Germany
  9. Bahrain
  10. Dubai / UAE

[Note from AfricaFocus Editor: African countries on the list rank as follows: Mauritius 23; Liberia 33; Ghana 48; South Africa 61; Botswana 62; Seychelles 72]

Crucially, even in those areas where there has been progress, developing countries are largely being sidelined: OECD countries are the main beneficiaries.

Our analysis also reveals that the United States is the jurisdiction of greatest concern, having made few concessions and posing serious threats to emerging transparency initiatives. Rising from sixth to third place in our index, the US is one of the few whose secrecy score worsened after 2013. Switzerland stays at the top of the index and for good reason: despite what you may have heard, Swiss banking secrecy is far from dead, though it has curbed its secrecy somewhat. The United Kingdom also remains a huge concern. While its own secrecy is moderate, its global network of secrecy jurisdictions – the Crown Dependencies and Overseas Territories – still operate in deep secrecy and have, for instance, not co-operated in creating public registers of beneficial ownership. The UK has failed to address this effectively, though it has the power to do so.

The progress: a scorecard

Since the global financial crisis emerged in 2008, governments have sought to curb budget deficits by cracking down on offshore corporate and individual tax cheating and financial crimes by the world's wealthiest citizens. Campaigners have shown them the way and the sea change in the political climate has been remarkable. Progress has come in three main areas.

  • Twelve years ago the tax justice movement created country-by- country reporting (CbCR), a measure that can shine a light country where they operate, including tax havens. They told us CbCR would never happen: it is now endorsed at G20 level and the first schemes to implement it are in place. However, we are concerned that CbCR cannot work unless the information is made publicly available.
  • Just four years ago they laughed at us for pushing the concept of automatic information exchange (AIE), where countries routinely share information about each others' taxpayers so they can be taxed appropriately. AIE is now being rolled out worldwide.
  • They said we at TJN were crazy to contemplate public registries of beneficial ownership (BO), to crack open shell companies and ensure that businesses, governments and the public know who they are dealing with, and to provide the basis for effective AIE. Beneficial ownership registries are now endorsed at G20 level: we now need a big political push to make them a reality and bring this information into the public domain.

Of these areas most progress has been made on AIE, with several schemes emerging. Though the G20 had mandated the OECD to create a country-by-country reporting standard, what it came up with has fallen well short, victim of heavy lobbying behind the scenes by U.S. multinationals in particular. Finally, the UK has passed legislation to create a public register of company beneficial ownership information, and the EU has required all member states to make beneficial ownership information available to anyone with a legitimate interest. However, little progress has been made towards creating an effective form of public registry for offshore trusts.

These broad changes are welcome, and we are pleased to see the EU leading the way: even some of Europe's historically worst secrecy jurisdictions, such as Luxembourg and Austria, are engaging.

The EU's leadership role, however, is called into question by recent resistance, spearheaded by Germany, to block public access to CbCR data and prevent expansion of CbC reporting beyond the banking and extractives sectors. (Read more about the current EU-level negotiations here.)

Almost all of the progress to date has arisen from public pressure. To counter the lobbies that constantly seek to undermine progress, sustained political grass roots pressure is indispensable.

The backsliding

Yet huge problems remain.

None of these initiatives take the interests of developing countries sufficiently into account. They haven't been centrally involved in setting the rules, and most will see little if any benefit. (Note, too, that secrecy is just part of a wider charge sheet against tax havens, as the box above explains.)

Meanwhile, even progress to date is under threat:

  • Private sector 'enablers' and recalcitrant jurisdictions like Dubai and the Bahamas are beavering away finding exclusions and loopholes, being picky about which countries they'll exchange information with, and simply disregarding the rules.
  • The United States' hypocritical stance of seeking to protect itself against foreign tax havens while preserving itself as a tax haven for residents of other countries needs to be countered. The European Union must take the lead here by imposing a 35 percent withholding tax on EU-sourced payments to U.S. and other noncompliant financial institutions, in the same way as the U.S. FATCA scheme does; and this should become global standard practice.
  • The UK has been playing a powerful blocking role to protect its huge, slippery and dangerous trusts sector, probably the biggest hole in the entire global transparency agenda. See below for more details.

The next section gives a brief description of the biggest players in the secrecy world today.

FSI 2015: the big players

[See full press release for more details on each country]

  • Switzerland (first place)
  • United States (3rd place)
  • United Kingdom [not in top ten, but "supports a network of secrecy jurisdictions around the world." If counted together, would be first place]
  • Hong Kong [2nd place]
  • Singapore [4th place]
  • Cayman Islands [5th place]
  • Luxembourg [6th place]
  • Lebanon [7th place]
  • Germany [8th place]
  • Bahrain [9th place]
  • Dubai [10th place]

About the Financial Secrecy Index

The Financial Secrecy Index ranks jurisdictions according to their secrecy and the scale of their offshore financial activities. A politically neutral ranking, it is a tool for understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight. The index was launched on November 2, 2015.

Shining light into dark places

An estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. Secrecy jurisdictions - a term we often use as an alternative to the more widely used term tax havens - use secrecy to attract illicit and illegitimate or abusive financial flows.

Illicit cross-border financial flows have been estimated at $1-1.6 trillion per year: dwarfing the US$135 billion or so in global foreign aid. Since the 1970s African countries alone have lost over $1 trillion in capital flight, while combined external debts are less than $200 billion. So Africa is a major net creditor to the world - but its assets are in the hands of a wealthy élites, protected by offshore secrecy; while the debts are shouldered by broad African populations.

Yet all rich countries suffer too. For example, European countries like Greece, Italy and Portugal have been brought to their partly knees by decades of tax evasion and state looting via offshore secrecy.

A global industry has developed involving the world's biggest banks, law practices, accounting firms and specialist providers who design and market secretive offshore structures for their tax- and lawdodging clients. 'Competition' between jurisdictions to provide secrecy facilities has, particularly since the era of financial globalisation really took off in the 1980s, become a central feature of global financial markets.

The problems go far beyond tax. In providing secrecy, the offshore world corrupts and distorts markets and investments, shaping them in ways that have nothing to do with efficiency. The secrecy world creates a criminogenic hothouse for multiple evils including fraud, tax cheating, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering, and plenty more. It provides multiple ways for insiders to extract wealth at the expense of societies, creating political impunity and undermining the healthy 'no taxation without representation' bargain that has underpinned the growth of accountable modern nation states. Many poorer countries, deprived of tax and haemorrhaging capital into secrecy jurisdictions, rely on foreign aid handouts.

This hurts citizens of rich and poor countries alike.

What is the significance of this index?

In identifying the most important providers of international financial secrecy, the Financial Secrecy Index reveals that traditional stereotypes of tax havens are misconceived. The world's most important providers of financial secrecy harbouring looted assets are mostly not small, palm-fringed islands as many suppose, but some of the world's biggest and wealthiest countries Rich OECD member countries and their satellites are the main recipients of or conduits for these illicit flows.

The implications for global power politics are clearly enormous, and help explain why for so many years international efforts to crack down on tax havens and financial secrecy were so ineffective, it is the recipients of these gigantic inflows that set the rules of the game.

Yet our analysis also reveals that recently things have genuinely started to improve. The global financial crisis and ensuing economic crisis, combined with recent activism and exposure of these problems by civil society actors and the media, and rising concerns about inequality in many countries, have created a set of political conditions unparalleled in history. The world's politicians have been forced to take notice of tax havens. For the first time since we first created our index in 2009, we can say that something of a sea change is underway.

World leaders are now routinely talking about the scourges of financial secrecy and tax havens, and putting into place new mechanisms to tackle the problem. For the first time the G20 countries have mandated the OECD to put together a new global system of automatic information exchange to help countries find out about the cross-border holdings of their taxpayers and criminals. This scheme is now being rolled out, with first information due to be exchanged in 2017.

Yet of course these schemes are full of loopholes and shortcomings: many countries are planning to pay only lip service to them, if that -- and many are actively seeking ways to undermine progress, with the help of a professional infrastructure of secrecy enablers. The edifice of global financial secrecy has been weakened - but it remains fully alive and hugely destructive. Despite what you may have read in the media, Swiss banking secrecy is far from dead. Without sustained political pressure from millions of people, the momentum could be lost.

The only realistic way to address these problems comprehensively is to tackle them at root: by directly confronting offshore secrecy and the global infrastructure that creates it. A first step towards this goal is to identify as accurately as possible the jurisdictions that make it their business to provide offshore secrecy.

This is what the FSI does. It is the product of years of detailed research by a dedicated team, and there is nothing else like it out there. We also have a set of unique reports outlining detailed offshore histories of the biggest players in the game.

G20 among biggest losers in large-scale tax abuse – but poor countries relatively hardest hit

Global Alliance for Tax Justice

Press Release

[Excerpt. Full press release & related reports available at | direct URL:]

November 10, 2015

G20 countries are among the biggest losers when US multinationals avoid paying taxes where they do business. This is the main finding of 'Still Broken' a new report on the global tax system released by the Tax Justice Network, Oxfam, Global Alliance for Tax Justice and Public Services International in advance of the G20 leaders' meeting in Turkey.

Overall it is estimated that, in order to reduce their tax bills, US multinationals shifted between $500 and 700 billion—a quarter of their annual profits—out of the United States, Germany, the United Kingdom and elsewhere to a handful of countries including the Netherlands, Luxembourg, Ireland, Switzerland and Bermuda in 2012. In the same year, US multinational companies reported US$ 80 billion of profits in Bermuda – more than their profits reported in Japan, China, Germany and France combined.

Claire Godfrey, head of policy for Oxfam's Even it Up Campaign said: "Rich and poor countries alike are haemorrhaging money because multinational companies are not required to pay their fair share of taxes where they make their money. Ultimately the cost is being borne by ordinary people – particularly the poorest who rely on public services and who are suffering because of budget cuts."

Rosa Pavanelli, general secretary of Public Services International said: "Public anger will grow if the G20 leaders allow the world's largest corporations to continue dodging billions in tax while inequality rises, austerity bites and public services are cut."

The G20 Heads of State are expected to consider a package of measures they claim will address corporate tax avoidance at their annual meeting in Turkey on 15 and 16 November.

Alex Cobham, director of research at Tax Justice Network, said: "The corporate tax measures being adopted by the G20 this week are not enough. They will not stop the race to the bottom in corporate taxation, and they will not provide the transparency that's needed to hold companies and tax authorities accountable. It's in the G20's own interest to support deeper reforms to the global tax system."

Twelve countries – the United States, Germany, Canada, China, Brazil, France, Mexico, India, UK, Italy, Spain and Australia – account for roughly 90 percent of all missing profits from US multinationals. For example, US multinationals make 65 percent of their sales, employ 66 percent of their staff and hold 71 percent of their assets in America but declare only 50 percent of their profits in the country.

While G20 countries lose the largest amount of money, low income developing countries such as Honduras, the Philippines and Ecuador are hardest hit because corporate tax revenues comprise a higher proportion of their national income. It is estimated, for example, that Honduras could increase healthcare or education spending by 10-15 percent if the practice of profit shifting by US multinationals was stopped.

Dereje Alemayehu, chair of the Global Alliance for Tax Justice said: "If big G20 economies with well-developed tax legislation and wellsupported tax authorities cannot put a stop to corporate tax abuse, what hope have poor countries with less well-resourced tax administrations? Poor countries need a seat at the table in negotiations on future tax reforms to ensure that they can claim tax revenues which are desperately needed to tackle poverty and inequality."

The Tax Justice Network, Oxfam, Global Alliance for Tax Justice and Public Services International are calling on the G20 to support further reforms to the global tax system that involve all countries on an equal footing. These reforms should effectively tackle harmful tax practices such as profit shifting and the use of corporate tax havens and should halt the race to the bottom in general corporate tax rates.

Summary of report

In 2013 the OECD, supported by the G20, promised to bring an end to international corporate tax avoidance which costs countries around the world billions in tax revenues each year. However, with the recently announced actions against corporate tax dodging, G20 and OECD countries have failed to live up to their promise. Despite some meaningful actions, they have left the fundamentals of a broken tax system intact and failed to curb tax competition and harmful tax practices.

It is often assumed that the richest and largest economies, home to most of the world's multinationals, defend the current system because it is in their interests.

However, new research from the Tax Justice Network1 shows that the gap between where companies pay tax and where they really do their business is huge and that among the biggest losers are G20 countries themselves, including the US, UK, Germany, Japan, France, Mexico, India, and Spain. This shows that even developed countries with state-of-the-art tax legislation and well-equipped tax authorities cannot stop multinationals dodging their tax without a thorough reform of the global tax system.

Profit shifting to reduce taxes is happening on a massive scale. In 2012, US multinationals alone shifted $500–700bn, or roughly 25 percent of their annual profits, mostly to countries where these profits are not taxed, or taxed at very low rates. In other words, $1 out of every $4 of profits generated by these multinationals is not aligned with real economic activity.

Large corporations and wealthy elites exploit the rigged international tax system to avoid paying their fair share of taxes. This practice has a relatively greater impact on developing countries, whose public revenues are more dependent on the taxation of large businesses. Recent IMF research indicates that revenue loss to developing countries is 30 percent higher than for OECD countries as a result of the base erosion and profit shifting activities of multinational companies.

Tax avoidance is a key factor in the rapid rise in extreme inequality seen in recent years. As governments are losing tax revenues, ordinary people end up paying the price: schools and hospitals lose funding and vital public services are cut. Fair taxation of profitable businesses and rich people is central to addressing poverty and inequality through the redistribution of income. Instead, the current global system of tax avoidance redistributes wealth upwards to the richest in society.

That is why civil society organizations, united in the C20 group, together with trade unions, are calling for the actions announced by the OECD to be regarded only as the beginning of a longer and more inclusive process to re-write global tax rules and to ensure that multinationals pay their fair share, in the interest of developed and developing countries around the world.

Considering the enormous losses that countries around the world incur, it is alarming that the G20 seems fairly satisfied with the current agenda. Governments and citizens of G20 countries should wake up, face the facts and take additional action immediately.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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