Noting the report published by IMF, forty per cent of today’s cross-border direct investments, which are around $18 trillion in value, are being booked in just 10 countries that offer corporate tax rates of 3 per cent or less. In this regard, Tax Justice Network (TJN) published the Corporate Tax Haven Index to identify which countries most responsible for the breakdown of the global corporate tax system.
Corporate tax haven index
Tax justice network published the corporate Tax Haven Index ranks countries where the index scores scored based on the degree to which it enables corporate tax avoidance. Further, the scores will be used to determine the share of global corporate activity put a risk of tax avoidance by the country. In other words, the greater the share of global corporate activity jeopardised by the country’s tax system, the higher it ranks on the index.
Based on such methods, these are the following top 10 countries that have done the most to proliferate corporate tax avoidance and break down the global corporate tax system:
- British Virgin Islands (British territory)
- Bermuda (British territory)
- Cayman Islands (British territory)
- Jersey (British dependency)
- Hong Kong
Referring to the finding, British controlled networks bearing the lion’s share of responsibility. These countries have aggressively undermined the ability of governments across the world to meaningfully tax multinational corporations.
Apart from the top 10 lists of corporate tax havens, the research also breaks down the most aggressive countries in term of lowering withholding tax rates through treaties:
- United Arab Emirates
- United Kingdom
The research revealed among 72 per cent of treaties negotiated by OECD countries with low income and lower middle income countries secured reductions in withholding tax rates to below the average withholding tax rates offered by those low income and lower middle income countries. Moreover, the OECD countries on average were 41 per cent more aggressive towards low and lower middle income countries than non-OECD countries were.
The United Emirates Arab (UEA) is the most aggressive country ranked by the corporate tax haven index. UEA secured the greatest average withholding tax reduction from African countries such as Mozambique (25 percentage points), Kenya (24 percentage points), and Sudan (21 percentage points). It means that the reduced withholding tax rates that the UEA negotiated with such countries were on average below (depends on the percentage points) the average withholding tax rates offered by those countries.
Impact of the index
The tax haven index can be used by governments to improve their tax system. In more details, the index will assist government to valuate their vulnerabilities to corporate tax avoidance risk, both internal and from other countries. The index also enables governments to immediately identify opportunities to minimize their exposure.
Based on their findings, the Tax Justice Network reiterates the important of unitary tax implementation to ensure full alignment of multinationals’ taxable profits with the location of their real economic activity.
Source: Tax Justice Network