an estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities. This is… not so legal.
These figures represent a huge loss of resources that, if collected, could be used to cut taxes on the rest of us, or spent on social programs to help people in our societies.
Investigative journalist Michael West takes a look at the masterminds of multinational tax avoidance, the “Big Four” global accounting firms of PwC, Deloitte, KPMG and Ernst & Young.
Source: Tax havens and the “Big Four”
America has been bugging the world about dodgy tax havens- ostentatiously to stop the super rich and the corporations from getting away without paying their fair share of taxes. It even slapped a 1.3 Billion dollar fine on Swiss banks suspected of helping Americans hide …
Tax paid by companies controlled by Australia’s richest business people, including Gina Rinehart, James Packer and Lindsay Fox, will remain secret after the Coalition succeeded in exempting private companies from new tax disclosure requirements.
Privately owned companies with revenues above $100 million should not have to publicly disclose how much tax they pay because the information could be “misused and misinterpreted” by the public.
G20 Brisbane: Five corporate tax havens around the world and how the summit can crack down on them By Paul Donoughue, staff
Prime Minister Tony Abbott has nominated global tax avoidance as one of the key issues on the agenda for this weekend’s G20 summit in Brisbane.
Major companies including Google and Apple have faced strong criticism over their efforts to lower their tax bills by shifting profits to jurisdictions with low or non-existent corporate tax rates.
Mr Abbott told the World Economic Forum earlier this year taxes needed to be fair “in order to preserve the legitimacy of free markets”.
“For the leaders of the countries generating 85 per cent of the world’s GDP merely to agree on the principles needed for taxation to be fair in a globalised economy would be a big step forward.”
The Lowy Institute’s Mike Callaghan said the issue was a complex one that will not be resolved in a single leaders’ summit.
“But what you need to see in Brisbane is what I call a down payment – something that you can point to to say, ‘this is a demonstration that G20 is trying to respond to the way global companies operate’,” he told ABC News Online.
“And what they could agree to in Brisbane is this sharing of what’s called country-by-country reporting.”
Currently, the Australian Tax Office can only see the local tax bill of a multi-national company, he said. But G20 leaders will likely formalise an OECD plan for countries to share information on what companies are doing internationally in regards to their taxes.
“The ATO could have more information [if] this multinational doesn’t seem to make much profit in Australia but has very large payments to subsidiaries in low-tax jurisdictions [and] doesn’t seem to have any workers employed there or any investment there but has huge profit centres.”
In light of this, we take a look at some of the world’s tax havens and which companies are taking advantage of them.
One of the worst-offending countries when it comes to facilitating tax avoidance is – surprisingly – the US, said University of Sydney senior lecturer in business Dr Antony Ting.
“The research shows the US government has been knowingly helping these multi-nationals to avoid foreign tax,” Dr Ting told ABC News Online.
“The government’s justification is ‘I want to help my companies be more competitive in the world’.”
In an attempt to draw corporations away from the major hubs of New York and New Jersey, the US state of Delaware has made it quick and easy to register a corporation.
A New York Times investigation in 2012 found more than 200,000 businesses – including major US tech companies – were registered at a single address.
However, the site was little more than a forwarding address for each firm. The idea, critics said, was to take advantage of the state’s low corporate tax rate.
“The tax rule in Ireland is a perfect accompaniment to the US tax laws,” Dr Ting said.
Last year, Apple faced criticism after paying $193 million in tax on $26 billion in profits in Australia thanks to its creative accounting practices.
CEO Tim Cook was forced to face Congress and deny Apple was unfairly avoiding tax by using a method known as the “double Irish”.
It involves a company based in the US or elsewhere setting up an Irish subsidiary, which usually only exists on paper.
That subsidiary, however, while registered in Ireland, is allowed under locals laws to be taxed in another jurisdiction.
In many cases, that is somewhere like the Cayman Islands or Bahamas, which have corporate tax rates of 0 per cent.
“You can set up a company that will not be taxed anywhere in the world,” Dr Ting said.
“Most of the profits Apple generates in Australia [are] never taxed anywhere in the world.”
Forbes has rated Ireland as one of the top 10 tax havens of the world, though the country is seeking to close these kinds of loopholes.
Bermuda, a British dependency, is one of several small jurisdictions – many of them islands – that does not have a corporate tax rate.
Along with the Cayman Islands and the Isle of Man, it has become an attractive destination for off-shore banking and financial services firms.
However, Bermuda denies it is a tax haven. Writing in The Guardian, MP Walton Brown said instead of collecting tax from companies, Bermuda charges customs duties.
“Over the last 15 years, when the OECD and the Financial Action Task Force began its continuing commentary on ‘harmful tax regimes’, Bermuda signed 42 tax information exchange agreements with countries seeking information about their citizens and companies,” he said.
“We signed the first tax agreement with our largest trading partner, the United States, in 1988. All a signatory country has to do is submit the tax request and Bermuda responds.”
Luxembourg is a landlocked country in western Europe with a population of about 500,000. It is one of the smallest sovereign nations in Europe, and has one of the highest GDPs per capita in the world.
Major international firms, including Pepsi, IKEA and FedEx, have sought deals with Luxembourg to lower their tax bill, according to emails obtained by the International Consortium of Investigative Journalists.
In light of those revelations, there have been calls this week for Jean-Claude Juncker, head of the European Commission, to step down, given he was the leader of Luxembourg when the deals were allegedly reached.
Mr Juncker is attending the G20 summit this week.
Members of the European parliament have meanwhile called for a probe into tax avoidance in the EU and the laws that facilitate it.
A 2011 report found Luxembourg was the easiest country in the EU in which to pay your company taxes: it takes just 59 hours, or a little over one full-time employee’s working week, compared to 616 in Bulgaria.
The Cayman Islands, a British Overseas Territory in the Caribbean Sea near Cuba and Jamaica, collects no corporate tax.
The island, with a population of just over 50,000 and a GDP per capita of about $50,000, is considered a global hub for off-shore banking.
Hundreds of international banks have branches there and the banking sector is one of the largest in the world.
This development brought the scrutiny of the OECD, and in 2009 US president Barack Obama singled the Cayman Islands out as a significant tax shelter.
In 2011, advocacy group the Tax Justice Network labelled the state the fourth safest tax haven in the world.