This race-to-the-bottom indicator assesses whether a jurisdiction’s tax system excludes foreign investment income from its tax base, and/or if it puts pressure on other countries to lower their corporate tax rates.

To understand the issue, consider a multinational headquartered in country A that receives passive income from country B (the image below). This passive income could be:

1. dividends (if the multinational has shares in either a related or independent company resident in country B)
2. interest (if the multinational made a loan to a company resident in country B), or
3. royalties (if the multinational allows a company in country B to use its patents or trademark).

Country B’s tax authorities may likely levy withholding taxes when the dividends, interests or royalties are paid from the companies in country B to the multinational in country A. What this indicator assesses is what country A does when those payments are received.

If country A doesn’t levy withholding taxes on those received payments (of dividends, interest or royalties), or if it merely allows those payments to be deducted from the multinational’s tax base, then country A is putting pressure on a race to the bottom. The multinational will only pay taxes on those payments in the foreign countries where the payment originated, but not in country A (where the multinational is headquartered). Therefore, a tax war may start among countries, such as country B, to lower the withholding taxes that they levy on dividends, interests and royalties in order to attract multinationals to invest there.

Click here for the full methodology of Haven Indicator 2.

This indicator is about how companies can use losses in one year, as deductions to cut their tax bills in other years. 

Imagine a multinational affiliate makes 200 Euros in losses in the year 2022, and 300 Euros in taxable profits in 2023. With a full ”loss carry-forward”, it can reduce its taxable profits (or its tax base) in 2023 to 100 Euros (= 300 Euros – 200 Euros).  

This may seem reasonable and normal. But now imagine that the company instead made a loss of 5,000 Euros in 2022, and 300 Euros in profits for each of the years from 2023 to 2033. Can it carry forward those losses from 2022 to cut its taxable profits to zero for the next ten years? (This is, in fact, something like what has happened to a lot of bailed-out banks in and after the global financial crisis. Even worse, there may be no real “losses” but only accounting tricks to make it appear as a company has no profit, since it would be hard for a company to sustain so many bad years without going bankrupt). Would a country allow losses to be carried forward indefinitely, with no time limit? Even more dramatically, could the multinational carry its losses backwards in time, to 2021, 2020, 2019 and so on, and get tax refunds for those years?

Corporate tax havens use these extensive loss-utilisation facilities as lures to attract multinational profit-shifting that might otherwise end up elsewhere.

This indicator measures whether losses can be carried forwards or backwards, and what limits are placed on these practices.

Click here for the full methodology of Haven Indicator 3.

When you buy an asset like a house, or a portfolio of shares, and sell it in a later year at a higher price, you have made a capital gain. Countries tax capital gains, to varying degrees, generally when a sale occurs. This indicator measures the extent to which a jurisdiction taxes corporate capital gains arising from the disposal of domestic and/or foreign securities (i.e. shares and bonds). As such, it assesses the lowest available tax levied on corporate capital gains, applicable for large for-profit corporations which are tax resident in the jurisdiction, irrespective of whether how those capital gains are taxed.

Some jurisdictions include capital gains by multinationals in the ordinary corporate income tax, and others tax capital gains separately. The rates may also differ depending on what is being bought and sold: whether it is real estate, financial securities, or some other kind of asset. This indicator considers capital gains by multinationals only on domestic and foreign financial securities, because this is where the profit-shifting generally occurs. Typically, a company affiliate in a tax haven will be a holding company that owns shares in other affiliates around the world. Low or zero capital gains taxes are often deliberately set in order to try and attract such holding companies. See for example the capital gains rates in a treaty between Mauritius and India – (our indicator however, looks at the non-treaty default position).

This indicator operates like Indicator 1, where we aren’t looking at the headline tax rate but at the lowest available capital gains tax rate, and similarly it is expressed as a percentage of the same 35 percent reference rate: so a low tax rate yields a high haven score.  It has two components, equally weighted:
- The lowest available tax rate on corporate capital gains when disposing of domestic securities
- The lowest available tax rate on corporate capital gains when disposing of foreign securities

Click here for the full methodology of Haven Indicator 4.

Countries offer tax exemptions in all sorts of ways, and for all sorts of reasons. Some exemptions are geographical - you can get tax exemptions if you set up in a special economic zone, for instance - while others are limited by time: you might get a ten-year tax holiday. Those exemptions are covered in Indicator 6. This indicator (5) by contrast, covers exemptions that apply to particular economic sectors and activities, which aren’t restricted by geography or limited by time. So if Argentina, say, had a headline corporate tax rate of 35 percent, but only 15 percent for agricultural activities, it would be covered under this indicator. 

We don’t want to penalise countries for trying to support particular economic sectors, perhaps as part of an industrial policy playing to the country’s strengths. So this indicator distinguishes between cost-based exemptions (where exemptions are granted on the basis of real capital investment or for salaries for staff, where money was actually invested and spent by the multinational;) and profit-based exemptions, which are granted simply because the company is engaged in specific for-profit activities. We don’t penalise cost-based exemptions: they can be harmful, but are generally less so than the profit-based exemptions — which drive profit-shifting, and which we therefore measure as part of this index. 

This indicator has two components:

1. Investment activities, notably financial investments, and real estate investments, which we classify as passive income; and
2. Economic sectors, such as agriculture, manufacturing, information technology, and so on.

Note: This indicator potentially overlaps with Indicator 1 (Lowest Available Corporate Income Tax Rate, or LACIT,) and the categorisation depends on the question of degree. If a country has these reductions or exemptions in enough sectors (four or more full exemptions, or eight or more partial exemptions) it is considered also under Indicator 1, which has a higher weighting in the index. Likewise, if a country has a 0 percent statutory tax rate (indicator 1), then any sector or activity would also have a 0 percent tax rate (Indicator 5), resulting in a haven score of 100 (highest tax avoidance risk).

Click here for the full methodology of Haven Indicator 5.

This indicator looks at whether a jurisdiction offers special tax incentives in a limited geographical area — such as in freeports, export processing zones, economic zones, and so on — or special tax holidays available over a set period of time. In contrast to Indicator 5, which focuses on tax incentives that are available to particular economic sectors or investment activities, this indicator focuses on geographical zones and time horizons.

Usually, these tax holidays and tax-free zones are advertised as ways to stimulate private investment, but in reality they can be easily abused for attracting profit-shifting activity, with relatively little benefit to the local population in terms of jobs or tax revenues, and often large tax losses and a range of other harms.

Click here for the full methodology of Haven Indicator 6.

This indicator measures where a country offers special tax incentives for Intellectual Property (IP) such as patents. The usual stated purpose of patent boxes is to stimulate innovation, but in reality they tend to be designed to attract corporate profit-shifting activity, with little or no resulting innovation, and often plenty of harm. As with so many other corporate tax haven facilities, patent boxes trigger other countries to follow suit, ensuing in a race to the bottom.

Jurisdictions that do not offer patent boxes get a haven score of zero (good).

One (slightly) mitigating factor is the “nexus” question - whether or not the patent box regime requires that genuine research and development activities underly the intellectual property in question — that is, a genuine nexus between the income generated and the underlying innovation that led to that income. The OECD has produced a “nexus” test that is supposed to reduce the abuses that stem from patent boxes — but its approach is complex and intellectually and practically flawed, so we give only a minor credit if countries comply with the nexus test. Jurisdictions that comply with the OECD’s nexus test get a 90 percent score. Jurisdictions that offer patent boxes but don’t comply get a 100 percent haven score for this indicator.  

Click here for the full methodology of Haven Indicator 7.

This indicator measures whether a jurisdiction offers fictional interest deduction to lower the corporate income tax. This facility allows multinational corporations to reduce their tax base (that is, to reduce the amount of their income that gets subjected to tax) by allowing them to deduct ”fictional” interest costs from their taxable income: that is, to deduct payments they could have made, but didn’t.

The facility, more commonly known as the “Notional Interest Deduction,” or NID, has been justified by its proponents as a way to avoid encouraging the large-scale use of debt, which can harm financial stability. However, it has ended up serving as a facility to shift profits and escape tax. 

Here’s how it works. Normally, a company that borrows a large amount can deduct the interest payments on its debt from its taxable income, and this encourages firms to take on debt, rather than get their financing from shareholder funds. The NID, however, says ‘you can have this deduction anyway, whether or not you borrow money and pay interest,’ so it is supposed to remove this harmful incentive for loading up with debt. It is generally calculated as a percentage of a company’s issued share capital. However, of course, it provides an avenue for companies, especially for companies with large shareholder capital, to escape tax (and there are better ways to eliminate this ‘debt bias’).The evident better way to address the debt bias would be to end the deductibility of interest.

As soon as this facility was first introduced in Belgium, firms quickly perfected the “double dip” where they took the NID and the interest deductions, and also worked out schemes to artificially boost their local affiliates’ share capital, so as to maximise the deductions.  

Click here for the full methodology of Haven Indicator 8.

This simple indicator assesses whether a jurisdiction requires all types of companies with limited liability to file annual accounts with a governmental body, and that these accounts are made accessible online.

If all company accounts are available for free, they get a zero (good) haven score. If they are available for free, but not in open data format, they get 25. If they are available online but for a fee (up to 10 Euros/$/GBP) they get a score of 50 . Otherwise, they get a full 100 haven score.
Click here for the full methodology of Haven Indicator
Note that this indicator is not just about the famous ”LLCs” - which are a common kind of company subject to particular tax rules. This is about all companies that enjoy the privilege of limited liability, which entitles the communities where they are licenced to operate to demand accountability - and this includes having its accounts available on public record. 

Click here for the full methodology of Haven Indicator 9.

*This indicator is the same as Indicator 7 in our Financial Secrecy Index.

Currently, most jurisdictions allow multinationals to scoop up their financial results — profits, taxes paid, and so on — from a number of jurisdictions and lump them all together in a single ‘regional’ or ‘global’ set of figures. It is impossible to unpick these figures to work out what is happening in each country, or to see how much of a multinational’s profits are being shifted into tax havens. This enables multinationals to shroud large parts of their financial affairs in secrecy.

Public Country-by-country reporting (CbCR), which the Tax Justice Network has advocated since its founding in 2003, is the solution to this: it involves requiring companies to publish relevant information, broken down separately for every country where it does business, including the tax havens. 

This indicator measures whether the companies listed on the stock exchanges or involved in certain sectors (eg extractives) or incorporated in a given jurisdiction are required to publish publicly worldwide financial reporting data on a country-by-country reporting basis.

If a jurisdiction does not require CbCR, it gets a haven score of 100. If it requires complete CbCR, according to our standards (no country currently even comes close) it gets zero. If it requires some annual or occasional) reporting, or some reporting just for some economic sectors, or reporting of incomplete data, it gets a partial score.

Click here for the full methodology of Haven Indicator 10.

This indicator complements Indicator 10. However, whereas Indicator 10 requires country-by-country reports to be published, this indicator (11) assesses whether local authorities have ensured that they can obtain country-by-country reports, even if they aren’t published.

Countries can obtain CbC reports in two ways: either via information exchange with the country where the multinational has its headquarters (as required by the OECD BEPS Action 13), or directly, from the multinational itself, whenever the country cannot obtain it automatically.

Currently, the OECD has a complex scheme in place to allow countries to access CbC reports via the indirect route, and only exceptionally, via the direct rule. In practice, there are a variety of legal and practical obstacles in the way of information exchange between jurisdictions — such as confidentiality provisions, or lack of an appropriate treaty allowing this information to be exchanged — and as a result, many countries are unable to obtain the CbC reports either indirectly or directly.

This indicator has a simple scoring mechanism. Jurisdictions get a zero (good) haven score if they go beyond the OECD framework and require direct filing of CbC reports whenever they cannot obtain it automatically (regardless of the reason). They get a score of 100 (bad) if they merely adopt the OECD framework, which severely constraints their ability to access the CbC report and use it as they see fit (or if they don’t even require access to CbC reports at all).

Click here for the full methodology of Haven Indicator 11.

*This indicator is based on Indicator 9 in our Financial Secrecy Index.

This indicator measures two related things: (1) whether and to what extent a country publishes online unilateral cross-border tax rulings; and (2) for countries with extractive industries, whether extractive industry contracts are published.

Tax rulings

Tax rulings were made famous in the “Luxleaks” corporate tax scandal, where it emerged that Marius Kohl, known in local tax circles as “Monsieur Ruling,” had rubber-stamped thousands of corporate tax avoidance schemes for some of the world’s biggest multinationals, through official “rulings” blessing the schemes. When a reporter asked whether these schemes were being correctly used, Kohl licked his thumb and held it in the air. “There is no way to verify it,” he said.

Unilateral tax rulings are private rulings that concern individual taxpayers and singular cases undertaking cross-border tax schemes. They have a high risk of abuse partly because they give approval to many questionable cross-border tax schemes, but also because they give favourable treatment to large multinationals (which use the schemes) at the expense of smaller competitors, which generally don’t. Multinationals sometimes defend tax rulings as helping them with something called “tax certainty,” which sounds good, but in fact merely means “certainty of low taxes,” as we have explained here. 

Jurisdictions that don’t issue tax rulings at all get a zero (good) haven score. If they issue rulings but publish them, they get a partial score, and if they issue rulings but keep them secret, they get a full score. 

Note: Unilateral tax rulings are not the same as “Advanced Pricing Agreements (APAs).” An APA involves the advance agreement by two or more tax administrations of jurisdictions involved in a cross-border transaction, so it is a bilateral or multilateral affair. A unilateral tax ruling concerns only the jurisdiction and the local taxpaying affiliate.

If the jurisdiction has no extractive industries, then the full score gives up to 100 points for this indicator. If the jurisdiction has extractive industries, then the full score on tax rulings gives up to 50 points. 

Extractive industries contracts

If there is an extractive industry, the jurisdiction gets up to 50 further points for this indicator, complementing the tax ruling sub-indicator. If the jurisdiction discloses all or nearly all contracts online for free, with a requirement for disclosure in law, it gets a zero (good) score here. 

Click here for the full methodology of Haven Indicator 12.

This indicator assesses whether tax avoidance schemes need to be reported. It has two main components. 

1. It assesses whether i) taxpayers and ii) tax advisers are required to report at least annually on certain tax avoidance schemes that they have used or marketed, with a 25 score for each category not being required to report.
2. It assesses whether i) taxpayers and ii) tax advisers are required to report at least annually details of uncertain tax positions for which reserves have been created in the annual accounts. A 25 percent score is awarded for each case, where reporting is not required. 

If reporting is required in all cases, the score is zero (good).

Click here for the full methodology of Haven Indicator 13.

This indicator assesses how secretive the jurisdiction’s courts system is, with respect to multinational tax affairs. It considers  whether verdicts and judgements and sentences are publicly available online.

The scoring system is simple: a score of 100 (bad) is reduced if judgements are published online for free for criminal matters and  for civil matters. If there are fees payable or other limitations to publication, then the score isn’t reduced by as much.

Click here for the full methodology of Haven Indicator 14.

Interest deductions are common tax abuse tools. If a local affiliate of a multinational enterprise borrows money from a foreign affiliate of the same multinational, it may have to make a stream of interest payments to that foreign affiliate. Those interest payments can be deducted as costs, reducing local taxable income (that is, reducing the tax base). 

This indicator assesses the extent to which jurisdictions put in place anti-avoidance measures to limit these practices. 

Various measures are used to limit interest deductions. The most effective is one that bars any interest deductions for payments to affiliates of the same multinational. Less effective but better than nothing are caps of interest deductions at a percentage of EBITDA (a standard corporate measure, representing earnings before interest, tax, depreciation and amortisation). Our indicator gives a zero (good) score if no intra group interest deductions are permissible, a score of 100 if there is no limitation on interest deductions, and a 50 percent score if deductions are capped at 10-30 percent of EBITDA. 

Scores between 50 and 100 are also possible, but the criteria are complex.

Click here for the full methodology of Haven Indicator 15.

This is rather like Indicator 15, except it examines the use of cross-border royalty payments, instead of interest payments, to create deductions against local taxable income (that is, against the ‘tax base.’)

Such deductions are, again, quite straightforward. A local affiliate of a multinational enterprise makes royalty payments to a foreign affiliate of the same multinational, for the use of some intellectual property (such as a brand, or a patent).  Those outward royalty payments to the foreign affiliate may be deducted as costs against the local affiliate’s taxable income, thus reducing the local ‘tax base’ and the local tax bill. 

Some jurisdictions place limits on these practices. We give a zero (good) haven score if the jurisdiction disallows these deductions, a 100 (bad) score if they place no limits on these deductions, and a partial (50 or 75) score if they impose some limits on these deductions.

Click here for the full methodology of Haven Indicator 16.

This is another indicator that looks at tools that are used to reduce local taxable income (or the ‘tax base’). This technique is rather like the interest deductions covered in Indicator 15, and 16, but with fees replacing interest payments or royalties as the tool for creating the deductions.

Here is how the technique works, in essence. A local affiliate of a multinational pays inflated fees for management or technical services, for consulting, and so on, to a foreign affiliate of the same multinational. If those fee payments flowing overseas can be deducted against the local affiliate’s income, this reduces the local tax bill there — while the foreign affiliate receiving those fees may pay little or no tax on that fee income if it is set up in a tax haven. These techniques are often especially damaging for developing countries, which often find that multinationals charge massively for such services in order to shift profits offshore. 

This indicator looks to see if the jurisdiction has defences against this kind of income-stripping via cross-border fee payments. We have two possible scores: a zero (good) score if there are certain restrictions made on deductions for service payments, and a score of 100 if there are no limitations.

Click here for the full methodology of Haven Indicator 17.

When the subsidiary of a multinational enterprise in Country A pays a dividend back to headquarters (or to another affiliate of the multinational) in another jurisdiction, Country A will typically apply a withholding tax to that outbound dividend payment.

This indicator looks at the lowest available tax rate on outbound dividend payments in cases where no tax treaty applies (so called unilateral rate). It is calculated in a similar way to Indicator 1: on a sliding scale measured according to its distance to the top reference rate (of 35 percent). So if the tax rate is 35, it will get a 0 haven score (good), whereas if the tax rate is zero, it will get a score of 100 (bad).

Click here for the full methodology of Haven Indicator 18.

This indicator assesses whether countries apply robust non-transactional controlled foreign corporations (CFC) rules. A controlled foreign company or corporation (CFC) is exactly what it says: a foreign company that is controlled by a locally based headquarters (or affiliate) of a multinational enterprise.

CFC rules are defensive measures against profit-shifting into offshore tax havens. If a multinational based in Country A generates large profits in an offshore tax haven, and that tax haven doesn't tax that income properly (or at all), then Country A can impose CFC rules which reach out and tax that affiliate in the haven. However, loopholes abound. The OECD has said that weak CFC rules are one of the biggest problems in international tax. 

If a jurisdiction has no CFC rules, we give it a score of 100 (bad). For jurisdictions that have some CFC rules, we follow EU logic and divide them into two categories: transactional (less bad, but still not great because they are based on the arm’s length principle as established by the OECD transfer pricing guidelines), and non-transactional (better). The explanation for this is as follows.

CFC rules are hard to implement. Some countries deliberately weaken or dilute their CFC rules to try and attract profit-shifting activity to attract multinational headquarters or holding companies to set up there. The EU's Anti Tax Avoidance Directive (ATAD) was introduced in 2016, which offered jurisdictions a choice of two options: Option A (non-transactional), the better option which allows countries to tax a range of passive income in foreign CFCs, unless that CFC carries out substantive  (genuine) economic activity; and the much weaker (transactional) Option B, which puts an onus on the tax authority to demonstrate that the scheme was put in place "for the essential purpose of obtaining a tax advantage."

Our scoring method is this:

1. Jurisdictions with no CFC rules get a 100 (bad) score on this indicator.
2. Jurisdictions that have adopted Option B (transactional) get a 75 (pretty bad) score.
3. Jurisdictions that have adopted Option A (non-transactional) get a 0 (good) score (even though Option A is far from perfect).

Click here for the full methodology of Haven Indicator 19.

This complex, important indicator indicates how aggressive a jurisdiction has been in signing its bilateral Double Tax Agreements (DTAs, which are treaties that decide how cross-border payments get taxed, at what rate, and by which jurisdiction). Corporate tax havens generally sign large numbers of DTAs with very low or zero tax rates and that include wide-open gaps and loopholes and other weaknesses. Multinationals consequently choose these jurisdictions as stepping stones in their low-tax pathways around the international tax system, to escape tax. 

This indicator is assessed on the basis of the withholding tax rates for Dividends, Interest and Royalties laid out in a jurisdiction’s tax treaties. Many thousands of such bilateral treaties exist, so this indicator requires a lot of number-crunching.

To see how this indicator is calculated, consider two jurisdictions, J1 and J2. If J1 and J2 have a DTA that withholds no tax on dividends (0 percent tax rate), we don’t know who is to blame. Did J1 impose this on J2, or the other way around? To determine this, we look at the treaties signed by J1 and J2 with other jurisdictions. If J2’s treaties with countries J3, J4 and J5 is on average 15 percent, but with J1 it’s zero percent, we assume that J1 is to blame. This would be confirmed if most of J1’s treaties with other countries also have tax rates of zero percent.

To assess J1's score, we start by looking at the average dividend tax rates in DTAs for each partner country of J1, say for J2. We look to see if the treaty with J1 has a lower or higher rate than that average of J2’s DTAs. If it is lower, then J1’s treaty policy is taken to be aggressive. This differential, and all similar differentials observed in all of J1’s treaty network are added together. The same will then be done for tax rates on interest, and then on royalties. These numbers will then be added to produce a country’s score for this indicator. The most harmful country’s score is defined as maximum haven risk (100), and all other country’s scores are scaled pro rata against that maximum risk.

Note: we treat zero-tax-rate tax havens as the worst countries as well, as they exert a downwards pressure on taxes even without treaties.

Click here for the full methodology of Haven Indicator 20.