The problem

Every second, we lose the equivalent of one nurse’s yearly salary to a tax haven. Governments around the world lose over $427 billion in tax every year to global tax abuse. These tax losses are particularly damaging to lower income countries, which lose the equivalent of half of their combined public health budgets every year to global tax abuse. Of the $427 billion in tax lost each year, more than half, $245 billion, is directly lost to cross-border corporate tax abuse by multinational corporations.

The Corporate Tax Haven Index thoroughly evaluates each jurisdictions tax and financial systems to help identify the jurisdictions most responsible for enabling multinational corporations to abuse corporate tax, and to highlight the laws and loopholes that policymakers can amend to prevent multinationals from continuing to abuse corporate tax.

The Tax Justice Network believes our tax and financial systems are our most powerful tools for creating just societies that give equal weight to the needs of everyone. But under pressure from corporate giants and the super-rich, some governments have programmed their tax and financial systems to serve as a tool with which multinational corporations can extract wealth and underpay tax. This fuels inequality, fosters corruption and undermines democracy. To repair this injustice, countries’ tax and financial systems must be reprogrammed to prioritise the needs of all members of society, over the desires of the wealthiest corporations and individuals.

Key issues highlighted by the index in 2021

OECD countries are responsible for over two-thirds of tax abuse risks

The Corporate Tax Haven Index 2021 finds that countries that are members of the OECD, the world’s leading rule-maker on international tax, the dependencies of the OECD member countries are together responsible for 68 per cent of the world’s corporate tax abuse risks. Broken down, OECD countries are directly responsible for 39 per cent of the world’s corporate tax abuse risks and their dependencies – like the UK’s Crown Dependency Jersey and the Netherlands’ Aruba - are responsible for 29 per cent.

The index documents the ways in which global corporate tax rules set by the OECD (Organisation for Economic Co-operation and Development) failed to detect and prevent corporate tax abuse enabled by the OECD’s own member countries – and in some cases, pushed countries to rollback their tax transparency.

The top six ranking jurisdictions on the Corporate Tax Haven Index 2021 are either OECD countries or their dependencies. 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.

Based on the Tax Justice Network’s State of Tax Justice 2020, OECD countries and their dependencies cost the world over $166 billion in lost corporate tax every year – the equivalent of losing over 26 million nurses’ yearly salaries a year, or losing 50 nurses’ yearly salaries every minute.

Almost all enablers of corporate tax abuse graded “non-harmful” by OECD

An analysis of the OECD’s flagship safeguarding policy against jurisdictions enabling harmful tax practices found that the policy failed to detect almost all corporate tax abuse risks documented by the index.

Jurisdictions rated as “non-harmful” under the OECD BEPS Action Plan 5, one of the four key pillars of the set of global rules the OECD launched in 2015 to tackle tax abuse by multinational corporations, are responsible for 98 per cent of the world’s corporate tax abuse risks. Jurisdictions graded “harmful” by the OECD account for just 1 per cent. Jurisdictions currently under review accounted for another 1 per cent.

The failure to the OECD’s Action Plan 5 to detect and curb harmful tax practices in its ratings has in practice normalised harmful behaviour by corporate tax havens.

Under the BEPS Action Plan 5, jurisdiction’s tax systems are evaluated and graded by the OECD on whether they enable harmful tax practices by multinational corporations. According to the OECD’s website, “members commit to participating in a peer review by the OECD Forum on Harmful Tax Practices, which has been conducting reviews of preferential tax regimes since its creation in 1998 in order to determine if the tax regimes could be harmful to the tax base of other jurisdictions.”

The current work of the Forum on Harmful Tax Practices (FHTP) comprises three key areas. The OECD’s website details these:

“Firstly, the assessment of preferential tax regimes to identify features of such regimes that can facilitate base erosion and profit shifting, and therefore have the potential to unfairly impact the tax base of other jurisdictions. Secondly, the peer review and monitoring of the Action 5 transparency framework through the compulsory spontaneous exchange of relevant information on taxpayer-specific rulings which, in the absence of such information exchange, could give rise to BEPS concerns. Thirdly, the review of substantial activities requirements in no or only nominal tax jurisdictions to ensure a level playing field, where the first assessment is not applicable.”

The Tax Justice Network’s analysis of the OECD’s harmful tax practices ratings only considers the first and third area of assessment. This is due to two reasons: First, the OECD does not provide jurisdictions with a rating under the second area of assessment. It only provides jurisdictions with recommendations for further action or no recommendation for action. It would be unfair to conclude that countries given no recommendations are considered non-harmful by the OECD and those given recommendations are considered harmful by the OECD. Hence, the Tax Justice Network only looks at ratings under the first and third assessment where language of harm is employed by the OECD. Second, the Tax Justice Network considers criteria used under the second area of assessments on exchange of information on tax rulings too weak to yield valuable insight. 

The EU tax haven blacklist ignores enablers of 98% of global corporate tax abuse

Jurisdictions listed on the EU tax haven blacklist when the Corporate Tax Haven Index 2021 launched had a combined CTHI share of 1.88 per cent, meaning they were responsible for just 1.88 percent of the world’s corporate tax abuse risk. In comparison, EU member states were responsible for 38 per cent.

British Territory Cayman, which was briefly blacklisted by the EU in 2020 and then removed from the blacklist in the same year, has a CTHI share of 6 per cent on the Corporate Tax Haven Index 2021. Meaning, Cayman alone enables more than three times as much corporate tax abuse risks as all jurisdictions on the EU tax haven blacklist combined.

Fixing the problem

Corporate tax abuse fuels inequality, fosters corruption and undermines democracy. To repair this injustice, we must reprogramme our tax and financial systems to give equal weight to the needs of all members of society, instead of prioritising the desires of the wealthiest multinational corporations. Read our solutions page here to find out how we achieve this.