Britain’s exotic network of tax havens “Treasure Island” could face the greatest threat to its existence in half a century, as the United States and its allies pledged to extort more taxes from large, profitable multinationals.
Often, the remote islands of the former British Empire have served as the supreme jurisdiction of everyone from wealthy Chinese employees to Russian oligarchs to Western companies to hedge funds seeking lower taxes ̵
But a tax deal struck by the finance ministers of a Group of Seven in a large 19th-century mansion near Buckingham Palace is likely to hit British treasure islands after decades of avoiding attempts by major economies to recoup their revenues. Read more
“This is a turning point,” said Alex Cobham, chief executive of the Tax Justice Network, an advocacy group that campaigns against tax evasion. “We’ll look back in five or ten years and say, ‘Yes, then move.’
“There is a narrative change – this active commitment to end the race to the bottom,” Cobham said, although he acknowledged that the details could still be poorly drafted and that politicians had promised to do so for years.
The world loses 427 billion dollars a year due to corporate and personal tax evasion, according to estimates by the Tax Justice Network. About $ 245 billion of this is lost to multinational companies, transferring profits to tax havens, and the remaining $ 182 billion is lost to wealthy people who are squirming in assets.
If the details of the G7’s stakes become a feasible reality, then global streams of hidden profits could be redirected in one of the most fundamental ways since the days when the British Empire collapsed in the 20th century.
When British rule collapsed, some of its possessions became self-governing territories that were not part of the United Kingdom, but which came under British defense agreements and maintained strong ties with London.
Some of these 14 British overseas territories – including Bermuda, the British Virgin Islands (BVI), the Cayman Islands, Gibraltar and the Turks and Caicos Islands – began living off a combination of beach tourism and exotic finances, leaving activists leaving locals and distant taxpayers short -changed.
British tax havens are responsible for 29 percent of the $ 245 billion tax the world loses on corporations, according to the Tax Justice Network, which ranks BVI, the Cayman Islands and Bermuda as the world’s top three opportunities for corporate tax abuse.
The finance ministries of the Virgin Islands, Cayman Islands and Bermuda did not respond immediately to requests for comment.
Those British Isles that are hardest hit by the looming redirection of corporate profits are facing a calculation that will undermine the business model they have been living on for decades and could lead to high unemployment, Cobham said.
In essence, two rival and intertwined networks of tax havens have developed: a British grid and a more continental one with a European flavor, which includes Ireland, Cyprus, Luxembourg, Malta, the Netherlands and Switzerland.
The G7 tax deal will make corporate tax havens much less attractive, as it gives countries the right to add an additional tax on corporate profits in countries with tax rates lower than the global minimum.
“Those who traditionally serve the personal market – this is the palm market, if you will – they will generally get away with it,” said Richard Murphy, a chartered accountant and visiting professor of accounting at Sheffield University School.
“Big corporate locations like Luxembourg, like Ireland, like the Netherlands will really win a hit here,” he said.
The countries most affected are expected to lobby hard to maintain as much of their tax advantage as possible. Key accounting definitions such as “profit” and “tax paid” have yet to be determined, Murphy said.
Although Murphy sees less impact on many traditional British tax havens, he said that ultimately the most important aspect of the G7’s communiqué is that it sends a signal to the corporate world: “clear your act.”
He said this would be a particular concern, as many Western boards face shareholders who are pushing for better environmental, social and corporate governance.
“For the business community, this sends a very big message, ‘avoid these places – you may have problems’ and indeed some of them will have problems,” he said.
“Technology will obviously be affected, but financial services are also largely affected,” Murphy said. “Banking and financial activities come first for this, as well as potentially some of the pharmaceutical companies.”
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