In the past decade, governments around the world have undertaken significant initiatives to combat international tax evasion. These efforts have included groundbreaking achievements such as the automatic exchange of bank information, a multilateral endeavor involving over 100 countries, and a historic international consensus on a global minimum tax for multinational corporations, endorsed by more than 140 nations and territories in 2021.
Despite the magnitude of these developments, their actual impact remains relatively obscure. The burning questions are whether global tax evasion is on the decline or ascent, what new challenges have emerged, and what ramifications these dynamics hold in an era marked by rising income and wealth inequality, mounting public debt in a post-Covid-19 world, and soaring government demands for funding climate change initiatives, healthcare, education, and public infrastructure.
This comprehensive report delves into these pressing issues, a result of a remarkable international research collaboration empowered by significant data enhancements. The report, curated by the EU Tax Observatory’s experienced team, presents the findings of more than 100 researchers across the globe, often working in partnership with tax authorities. Leveraging newly available data on the activities of multinational companies, such as country-by-country reports, and the offshore wealth of households through the automatic exchange of bank information, this report stands as the first systematic attempt to assess this informational transformation.
To clarify, this report goes beyond a narrow definition of tax evasion in terms of fraud. It focuses on matters central to international policymaking over the past decade: the challenges posed by globalization in taxing multinational companies and high-net-worth individuals. The practices under scrutiny encompass the unequivocally illegal, like failing to report income from offshore bank accounts, the ethically ambiguous, such as shifting profits to shell companies lacking economic substance, and the legally permissible, like relocating to countries with special tax incentives for affluent individuals. However, all these practices enable economic actors who have profited the most from globalization to further reduce their tax obligations, thus eroding government revenue and amplifying inequality.
At the heart of these matters is the social sustainability of globalization and modern tax systems.
The report brings to light both positive developments and setbacks, along with persistent issues:
- Notable reduction in offshore tax evasion by wealthy individuals, thanks to automatic bank information exchange, with a decline estimated at about threefold over the past decade.
- Dramatic weakening of the global minimum tax for multinational corporations, which initially promised to increase global corporate tax revenues by almost 10% but has been eroded by various loopholes.
- An increase in domestic tax evasion, including the grey-zone practices that allow global billionaires to maintain effective tax rates equivalent to from 0% to 0.5% of their wealth.
To address these issues, the report makes six key proposals, with a central recommendation being the establishment of a global minimum tax on billionaires, set at 2% of their wealth. A preliminary estimation suggests that this measure could raise approximately $250 billion annually from fewer than 3,000 individuals. A reinforced global minimum tax on multinational corporations, free of loopholes, could contribute an additional $250 billion per year. These proposals could provide a significant source of additional public revenue, aligning with the needs of developing countries to address climate change challenges, among other critical issues.
It is imperative to recognize that tax evasion is not an immutable aspect of the global landscape but rather a policy choice. As interconnected nations, we have the option to choose coordinated efforts to curb tax evasion or to let it flourish through unregulated policies. Even unilateral action can yield substantial progress should global agreements falter.
The report outlines six primary findings on the dynamics of international tax evasion and competition:
Finding #1: The automatic information exchange has significantly curtailed offshore tax evasion, reducing it by approximately threefold in less than a decade.
Finding #2: Profit shifting to tax havens remains a persistent concern, with an estimated $1 trillion shifted in 2022.
Finding #3: The global minimum tax has been substantially weakened, with a growing list of loopholes that diminish its expected impact.
Finding #4: Emerging forms of tax competition have detrimental effects on government revenue and exacerbate inequality.
Finding #5: Global billionaires benefit from remarkably low effective tax rates, raising questions about fairness.
Finding #6: A global minimum tax on billionaires could generate substantial revenue.
The report concludes with six recommendations to address the identified issues, focusing on reducing the tax deficits of multinational corporations and wealthy individuals. These proposals have the potential to not only provide significant government revenue but also contribute to the social sustainability of globalization.
In summary, the changing landscape of international tax evasion calls for a coordinated effort to ensure tax justice in a globalized world. The choices we make as nations will have a profound impact on our ability to combat tax evasion, reduce inequality, and address pressing global challenges.
Fore more information, find the full Global Tax Evasion Report 2024 here: Report
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