A new report by Tax Justice Network has revealed that the British Overseas Territories have finally taken over as the world’s largest enablers of corporate tax abuse. The study on the international scale of tax avoidance by the organization concentrates on the territories, among which are the British Virgin Islands, the Cayman Islands, and Bermuda, and the territories rank from the top three significant tax havens. They enable billions in corporate tax avoidance every year, very seriously affecting the global economy.
The report estimates that these territories account for £63 billion annually in tax losses. Considering losses due to tax evasion by high net worth individuals, it increases to £126 billion. Despite efforts through overseas territories being an influence in putting an end to such practices by bringing transparency and regulations, it still remains at such an all time high. It’s perceived that such territories allow multinational companies to change the reporting of their profits, thereby preventing them from paying the required taxes and usurping the much-needed revenue of many nations, especially the third world.
Only the Cayman Islands report tax avoidance at a rate of around $70 billion; these are indeed at what scale such jurisdictions operate. The British government has often been accused of following a “double standard” as the former applies strict rules on taxation in its mainland but oversees and profits from the lax financial regimes of its territories. HM Revenue and Customs claimed to recover around £700 million from international anti-tax initiatives. But much more needs to be done, argues the Tax Justice Network, this should be coordinated at the world level, possibly in the United Nations, rather than under the existing OECD effort.
The Tax Justice Network’s Corporate Tax Haven Index ranks the British Overseas Territories and Crown Dependencies Jersey and Guernsey among the most critical elements of the global tax avoidance network. Although legally distinct, these territories are under the UK’s influence and contribute to around 29% of tax abuse risk globally. The OECD has been criticized for its ineffective measures since it has dominated global tax reform for over ten years. Its rules intended to curb profit shifting and tax avoidance have been regarded as diluted and ineffectual to address the scope of abuse in these territories.
Advocates push for reform and pressure the United Kingdom to implement more stringent transparency regulations in all of its jurisdictions, including requiring public disclosure of corporate beneficial owners in these territories. Advocates are also requesting that the United Kingdom government to support initiatives from the United Nations aimed at creating more inclusive and effective global regulations on taxation.
Critics would argue that previous UK governments have avoided the support for UN tax reforms, instead sheltering financial benefits within its overseas territories. The new Labour government is now under scrutiny by the international community to readjust domestic policy in conformity with global standards, standing up for the fair and transparent nature of all its overseas territories. If they succeed, it would pave the way for more reduced global tax evasion schemes, wherein the country could actually provide a much fairer economic topography for the nations involved in loss-generating tax revenue streams.
