“Sometimes economists in official positions give bad advice; sometimes they give very, very bad advice and sometimes they work at the OECD.” — Paul Krugman
Two weeks ago, in part one of this series, we observed that, since 2000, The Bahamas government has enacted numerous pieces of legislation that have seriously, if not irreparably, eroded our offshore financial services sector. Those developments represent a prolonged and sustained assault by the Organization for Economic Cooperation and Development (OECD) on our sovereignty and our way of life.
Armed with OECD-inspired and directed legislation, those initiatives are justified in parliamentary debate that is often full of sound and fury, replete with veiled platitudes and gratuitous accolades about how the government of the day effectively staved off The Bahamas’ inclusion on the OECD’s infamous blacklist.
We also noted that by constantly moving the goalposts, the OECD has effectively devastated the competitive advantages that have long existed in offshore financial centers, including The Bahamas, despite OECD member countries professing to support free markets.
Therefore, this week, we will continue to consider this – have the OECD and the European Union (EU) demonstrated a degree of hypocrisy by continually threatening to blacklist us if we do not submit to their dictates to amend our financial laws for their benefit?
We will review some of the countries that have hypocritically imposed their will on us while remaining guilty of the very charges they have levied against us.
The OECD is comprised of 37 member countries and was supposedly formed to discuss and develop economic and social policies impacting its member states. OECD members are democratic countries that ostensibly support free-market economies. Its membership is primarily comprised of developed European democracies and includes the United States, Canada, Australia, and several Asia-Pacific and South American countries.
One of the OECD’s primary objectives is to eliminate tax havens from the face of the earth. Tax havens, now more appropriately called “offshore financial centers,” offer foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Historically, offshore financial centers have disclosed limited financial information to foreign tax authorities. Historically, these jurisdictions have not required residency or business presence for individuals and businesses to benefit from offshore financial centers’ legal and tax policies.
The hypocrisy of it all
The recently published tax haven ranking reflects that some countries that set the global tax rules, and are members of the OECD, are most prominent in helping firms bend them. This is the height of hypocrisy.
Corporate Tax Haven Index 2021 is an internationally recognized ranking of countries most complicit in helping multinational corporations pay less tax than they are supposed to. The Tax Justice Network publishes the Index. This is an advocacy group comprised of a coalition of researchers and activists with a shared concern focused on tax avoidance, tax competition, and tax havens.
The Index documents ways in which the OECD’s global members are some of the biggest offenders of its own rules. It also shows that the OECD has failed to detect and prevent corporate tax abuse enabled by the OECD’s own member countries.
The Tax Justice Network Report (the Index) accentuates the OECD’s failure to tackle rampant global corporate tax abuse that annually costs the world $245 billion in lost corporate tax revenue. The Corporate Tax Haven Index 2021 concluded that OECD countries and their dependencies are responsible for 68 percent of the world’s corporate tax abuse risks. For example, the UK’s Crown Dependency Jersey and the Netherlands’ Aruba together account for 29 percent of the world’s corporate tax abuse risks.
The 2021 edition of the Tax Justice Network’s biennial Corporate Tax Haven Index highlights OECD countries or their dependencies that are included in the top six spots on the ranking of the world’s most significant enablers of corporate tax abuse.
These jurisdictions include the British Virgin Islands, Cayman, and Bermuda – three British Overseas Territories where the United Kingdom government has full powers to impose or veto law-making and where the ability to appoint key government officials rests with the British Crown. This list also includes the OECD countries of the Netherlands, Switzerland and Luxembourg.
According to the Corporate Tax Haven Index 2021, the world’s top 10 biggest enablers of global corporate tax abuse are:
1. British Virgin Islands (British Overseas Territory)
2. Cayman Islands (British overseas territory)
3. Bermuda (British overseas territory)
7. Hong Kong
8. Jersey (British Crown dependency)
10. United Arab Emirates
According to the Corporate Tax Haven Index, “Jurisdictions are ranked by their Corporate Tax Haven Index value, which is calculated by combining a jurisdiction’s Haven Score and Global Scale Weight.
“A jurisdiction’s Haven Score is a measure of how much scope for corporate tax abuse the jurisdiction’s tax and financial systems allow and is assessed against 20 indicators. A jurisdiction’s Global Scale Weight measures how much financial activity from multinational corporations the jurisdiction hosts. Combining a jurisdiction’s Haven Score and Global Scale Weight frames a picture of how much of the world’s corporate financial activity is put at risk of corporate tax abuse by the jurisdiction.”
The Corporate Tax Haven Index 2021 indicates that the most significant responsibility for enabling global corporate tax abuse among the OECD group falls on the United Kingdom and its Overseas Territories and Crown Dependencies. The UK could easily rectify this situation if it desired to do so. To date, it has not.
After the United Kingdom, the three most significant enablers of corporate tax abuse risks among OECD countries and their dependencies are the Netherlands, Switzerland and Luxembourg. These three countries are collectively responsible for nearly half of the world’s corporate tax abuse risks. This group is referred to as the “axis of tax avoidance”.
The index concluded, “The axis of tax avoidance is responsible for over two-thirds (67 percent) of the corporate tax abuses that OECD countries and their dependencies enable.”
A further review of the Index reveals that many of the jurisdictions included in the list are OECD countries.
Dr. Dereje Alemayehu, the executive coordinator of the Nobel Peace Prize-nominated Global Alliance for Tax Justice, said, “To trust the OECD in light of the index’s findings today is like trusting a pack of wolves to build a fence around your chicken coop.”
Liz Nelson, director of Tax Justice and Human Rights at the Tax Justice Network, said: “The world’s richest countries are depriving the rest of the world of… billions in corporate tax every year by enabling the biggest multinational corporations to pay less tax than they should. OECD countries can plea that they’re operating within the OECD’s global tax rules, but the fact is the window dressing tax rules they pushed on the rest of the world are depriving poorer countries of the equivalent of 26 million nurses’ yearly salaries every year, or 50 nurses’ yearly salaries every minute. It’s time our global tax rules are set by the UN, where democracy and people’s human rights come before plutocracy and superyachts.”
A comparison of countries’ OECD ratings against the Tax Justice Network’s analysis of the OECD’s own country by country reporting data shows that countries graded as “not harmful” by the OECD cost the world more than $200 billion in lost corporate tax annually by enabling multinational corporations to shift profits.
Countries, such as The Bahamas that are graded as “harmful”, cost the world just $5 billion in lost corporate tax.
The Tax Justice Network argues that the EU’s tax haven blacklist failed to identify the most egregious enablers of global tax abuse. Ironically, jurisdictions blacklisted by the EU at the time were responsible for less than two percent of the world’s tax losses to global tax abuse.
An interesting example of this can be observed in the Cayman Islands, which continues to grow into one of the world’s single greatest global tax abuse threats. This 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. This prompted Paul Tang, member of the European Parliament and chair of the European Parliament’s subcommittee on tax matters, to call for “political games” to be removed from the blacklisting process.
In the final analysis, instead of those that are blacklisted, it is many OECD countries that are among the most significant threats of global tax abuse. The most important question regarding these realities is: what can be done to rectify this gross inequity and flagrant hypocrisy?
Next week, we will also explore what options remain for us to reverse this perverse attack on our patrimony and examine what we can do to regain our lost stature as a premier offshore center.
• Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to firstname.lastname@example.org.