Advocacy group Tax Justice Network has ranked the British Virgin Islands, followed by the Cayman Islands and Bermuda as “most complicit” in helping companies pay lower corporate income tax.
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British overseas territories are the world’s top corporate tax abusers, according to a ranking by tax advocacy group Tax Justice Network.
The British Virgin Islands is the region that “cooperates the most” in helping multinational companies pay lower income tax, followed by the Cayman Islands and Bermuda, according to TJN’s latest update Corporate Tax Haven beginning of this month.
“The UK and its network of UK tax havens, often referred to as the UK’s ‘second empire’, are now responsible for a third (33%) of all corporate tax abuse risks measured by the index,” he said to CNBC a TJN spokesperson. .
Switzerland ranked fourth, followed by Singapore, Hong Kong and the Netherlands. Number eight on the list is the UK self-governing dependency of Jersey, while the UK itself came in at number 18.
TJN estimates that the UK and British tax havens cost it other countries approx $84 billion in corporate taxes annually.
Defending themselves against the advocacy group’s accusations, representatives from some governments said they fully comply with international tax standards set by the Organization for Economic Co-operation and Development.
The British government’s Foreign, Commonwealth and Development Office told CNBC that the UK is complying Common Reference Standard adopted by the OECD in 2014.
The CRS is designed to increase transparency on tax matters on a global scale and enable tax authorities to disclose income and assets held abroad by their taxpayers.
FCDO told CNBC that it had more than 100 countries sharing CRS information with them, with more than 9.2 million accounts reported in total, by the end of 2022.
The agency added that Crown Dependencies and Overseas Territories were separate jurisdictions with their own democratically elected governments responsible for their fiscal affairs.
Representative for BVI Financeself-described as “the voice of the British Virgin Islands financial services industry,” told CNBC that the region complies with global standards, participates in global tax transparency initiatives under the OECD and cooperates fully with the UK government and law enforcement agencies in sharing “relevant” information.
The Cayman Islands and Bermuda government tax authorities did not respond to CNBC’s inquiries.
Based on the OECD’s standards for identifying and isolating countries that allow multinational corporations to abuse taxes, the British Virgin Islands, the Cayman Islands and Bermuda, are currently rated as “not harmful.”
TJN, which finds patterns like CRS as insufficient to deal with tax avoidance and fraudhas endorsed the efforts of the United Nations to undertake the regulation of international tax policy.
In August, the UN unveiled one draft to develop a universal tax agreement for inclusive and effective international tax cooperation.
Broad commitments in the guidelines include fair taxation of multinational enterprises, tackling tax evasion and avoidance by high net worth individuals and effective prevention and resolution of tax disputes.
A total of 110 UN member states voted in favour of the terms of reference for a new treaty, with 44 abstentions and only eight states voting against it, including the UK.
TJN has accused the UK of double standards such asthe country has strengthened its own defenses against global corporate tax avoidance in recent years, while voting against the UN treaty.
Other states that opposed the UN initiative were the US, Australia, Canada, Israel, Japan, New Zealand and South Korea.
According to TJN, the world he will probably lose $4.8 trillion in tax havens over the next 10 years if the OECD remains the global tax regulator. The UN tax convention is the best effort in the world to prevent this loss, the TJN spokesman said.
The OECD currently pursues its own policy aimed at better tackling tax avoidance — a global minimum tax agreement that will impose a minimum effective interest rate of 15% on large multinationals.
TJN methodology — and push
To determine its ranking, TJN evaluated a country’s tax laws based on 18 indicators, including the minimum corporate tax rate, tax exemptions and how aggressive a country’s tax treatment is toward other countries.
This is the country’s “Haven Score” and is intended to assess how much “leeway” there is for corporate tax abuse. The British Virgin Islands, the Cayman Islands and Bermuda scored the worst on all 18 indicators.
TJN then measured how much economic activity is conducted by multinational companies entering and exiting the country.
“This means the index ranks corporate tax havens based on how harmful they are to other countries in practice, not just in theory,” the TJN spokesman said.
The corporate tax haven index has been reported by European Parliament and the European Commissiontogether with international organizations such as UN Human Rights Council and Oxfam.
However, tax experts such as Niels Johannesen, director at Oxford University’s Center for Taxation, dispute that the index is an accurate measure of tax avoidance.
Johannesen told CNBC that while TJN’s research is reliable for determining which countries are implementing which legal measures against international tax avoidance, he doubts the index is reliable for measuring tax avoidance facilitated by a jurisdiction.
“A more important metric is earnings displacement [multinational corporations] have been kept. The best academic studies with this focus show that Bermuda and the Caribbean jurisdictions are important, but they estimate that Ireland, for example, receives more shifted profits than the three combined,” he said.
Meanwhile, Leopoldo Parada, associate professor of tax law and co-director at the Center for Business Law and Practice at the University of Leeds, questions the inclusion and framing of TJN’s haven rating indicators, such as the lowest available corporate income tax.
“All countries use different tools to compete to attract investment. Some have infrastructure, others better technology or cheap labor … countries that have fewer competitive advantages in some of these areas tend to offer other options, including very low corporate income tax rates and other aspects of the tax system,” Parada said.
“It’s not just because a country has a very low corporate income tax rate that we should automatically consider a country open to tax evasion … that country is simply willing to pay the price.”