2021 edition of the Tax Justice Network’s biennial Corporate Tax Haven : Netherlands (4) en Belgium (16)...

15 mars 2021 à 17:05

The 2021 edition of the Tax Justice Network’s biennial Corporate Tax Haven Index sees OECD countries or their dependencies take up the top six spots on the ranking of the world’s greatest enablers of corporate tax abuse. These are, in descending order, the British Virgin Islands, Cayman and Bermuda – three British Overseas Territories where the UK government has full powers to impose or veto lawmaking and where power to appoint key government officials rests with the British Crown – the Netherlands, Switzerland and Luxembourg.

How does ik work ?

The Corporate Tax Haven Index ranks each country based on how intensely the country’s tax and financial systems allow multinational corporations to shift profit out of the countries where they do business and consequently pay less tax than they should there. The index grades each country’s tax and legal system with a “haven score” out of 100 where a zero represents no scope for corporate tax abuse and a 100 is unrestrained scope for corporate tax abuse. The country’s haven score is then combined with the volume of financial activity conducted in the country by multinational corporations to calculate how much cross-border corporate tax abuse is facilitated by the country.

A higher rank on the index does not necessarily mean a jurisdiction’s corporate tax laws are more aggressive, but rather that the jurisdiction in practice plays a bigger role globally in enabling the profit shifting that costs countries billions in lost tax every year. A highly tax aggressive jurisdiction that facilitates a small volume of financial activity from multinational corporations, like Anguilla (ranked 39th), will rank below a less tax aggressive jurisdiction that is a major host of multinational corporations’ financial activity, like Belgium (ranked 16th).

Key changes in ranking

Cayman threat continues its relentless rise

British Overseas Territory Cayman has moved up from third to second on the Corporate Tax Haven Index since the last edition of the index 2019. While the British Overseas Territory had already maxed out its haven score at 100 in 2019, it increased the volume of financial activity it hosts from multinational corporations by nearly 15 per cent, thus increasing the global role it plays in enabling profit shifting.

Cayman also increased its ranking last year on the Tax Justice Network’s Financial Secrecy Index 2020 – a ranking of countries most complicit in helping individuals to hide their finances from the rule of law – from third to first after it increased the volume of financial activity it hosts from non-resident persons by 21 per cent. Cayman has been referred to as the “crown jewel of the UK spider’s web”, a network of British territories and dependencies (where the UK government has full powers to impose or veto lawmaking) that operates as a global web of tax havens laundering and shifting money into and out of the City of London.

Despite Cayman continuing to grow into the world’s single greatest threat of global tax abuse, the British Overseas Territory was removed from the EU tax haven blacklist in 2020 after a major public relations campaign. A bid by a handful of members of the European Parliament to re-blacklist Cayman in February 2021 failed, prompting Paul Tang, MEP and chair of the European Parliament’s subcommittee on tax matters, to call for “political games” to be removed from the blacklisting process.

UAE enters top 10 for the first time following $250bn Netherlands injection

The United Arab Emirates (UAE) entered the ranks of the world’s top 10 greatest enablers of corporate tax abuse after multinational corporations rerouted over $218 billion foreign direct investment through OECD member Netherlands and into the UAE’s economy. Although the UAE’s haven score of 98 out of 100 did not change since the 2019 edition of the index, the injection from the Netherlands – which was equivalent to more than half of the UAE’s GDP – skyrocketed the volume of financial activity the UAE hosts from multinational corporations by nearly 180 per cent. As a result, the UAE jumped up from 12th to 10th on the ranking.

Investigative work by the Tax Justice Network attributes the likely source of the injection to a multibillion-dollar game of “hot potato” where $200 billion in foreign direct investment were routed into the Netherlands from the US and South Africa in 2019. This large injection into the Netherlands seems to have then been rerouted into the UAE. The substantial increase of foreign direct investment from South Africa into the Netherlands coincides with a decrease of similar magnitude in foreign direct investment going from South Africa to China. This suggests that the UAE replaced China as a favoured destination of foreign direct investment leaving South Africa. However, since data is aggregated at the country level, it does not show which individual companies are responsible for these shifts.

The UAE also appears to have replaced two British Overseas Territories – the British Virgin Islands (ranked 1st on the index) and Bermuda (ranked 3rd) – as a preferred destination for multinational corporations based in the Netherlands and multinational corporations that use the Netherlands as a conduit. The two tax havens hosted $130 billion less in foreign direct investment from the Netherlands in 2019 than they did in 2018 (a 64 per cent decrease). Overall, Bermuda saw the volume of financial activity they host from multinational corporations from around the world drop by over $150 billion (19 per cent) between 2018 and 2019. The shift towards the UAE may in part be explained by the UAE’s more lenient adoption of the Economic Substance Core Income Generating Activities rules – which require a certain level of economic activity to take place in the jurisdiction in which a multinational reports profits – and by the UAE’s growing role as the offshore financial centre of choice for multinational corporations operating in Africa and Asia.