Poorer countries, meanwhile, are losing a larger share of their total tax revenue to the abusive practices — about 5.8 percent vs. 2.5 percent in high-income countries, according to the report, which analyzed data from 2016 and 2017.
The missing tax revenue is particularly harmful during the coronavirus crisis, when many countries are struggling to combat infections and support ailing economies and workers, according to the report from the Tax Justice Network, the Global Alliance for Tax Justice and a trade-union group called Public Services International.
“With the coronavirus pandemic shining a harsh light on the grave cost of underfunded health and public services around the world … these figures represent a tragedy,” the authors wrote. “Tax abuse is depriving countries of billions and billions in urgently needed tax and holding us all back from building better, healthier, fairer societies.”
The lost money would be enough to pay the salaries of 34 million nurses a year, the researchers found.
Blame lies not only with multinational companies and wealthy individuals, but with high-income countries that have “stalled meaningful reform of the broken, international tax system and have actively hid the scale and extent of international tax abuse from their populations,” they said.
Alex Cobham, an economist and chief executive of the U.K.-based Tax Justice Network, said in an interview that global tax laws must be overhauled to stop companies from shifting profits to low-tax havens, to expose the size and provenance of the huge private fortunes held offshore, and to protect every country’s right to collect tax from the profit generated within its borders.
The paper is the first to make use of new data from the Organization for Economic Cooperation and Development, or OECD, showing how much profit and revenue multinational companies report in each country, how many employees and assets they have, and how much tax they pay.
The data allowed the researchers to pinpoint where companies are underreporting profit and underpaying taxes based on their real economic activity. The data are aggregated, meaning companies are lumped together in composite figures in each country, so individual corporate behavior isn’t discernible.
The report found that corporations are shifting $1.38 trillion worth of profit each year into tax havens that charge little-to-no tax, causing the governments where that profit is actually earned to miss out on $245 billion in annual revenue.
Using different data sets, the researchers found that countries are losing an additional $182 billion a year from wealthy individuals hiding their fortunes in tax havens.
Hiding income from the tax authorities is illegal, Cobham said. Companies often argue that their profit-shifting and tax-avoidance strategies adhere to the letter of the law, but sometimes wind up in disputes with the tax authorities, he said.
“Whether or not it crosses the line of criminality,” there is a stigma attached to it, he said. “Companies don’t want to publish country by country reporting because it shows profit-shifting … and they know the public at large thinks it’s not okay.”
The OECD has been leading multilateral negotiations aimed at updating the 3,000-odd bilateral treaties that regulate global taxation. A big goal of the drawn-out negotiations is to “prevent income from not being taxed anywhere,” said Reuven Avi-Yonah, a law professor and tax expert at the University of Michigan.
Fair-tax campaigners say legislation making its way through Congress would help crack down on tax evasion by putting an end to anonymous shell companies.
The measure, which has been rolled into an annual defense spending bill, would require companies established in the United States to disclose their real owners to the Treasury Department, making it harder for criminals to evade taxes or anonymously launder money.
Nearly 2 million corporations and limited-liability companies are registered each year in the United States, at the state level. Few states today require companies to disclose their true owners, with Delaware and a few others turning the registration of anonymous companies into big business.
This tolerance for corporate secrecy in the United States undermines the global fight against tax abuse, the new report says.
The researchers also point a finger at the U.K. and its tax-haven territories and crown dependencies, including Bermuda, Cayman, Jersey and the British Virgin Islands. This network is responsible for 37 percent of all losses governments suffer from corporate and private tax abuse, the report says.
When it comes to corporate tax avoidance, the Netherlands, Switzerland and Luxembourg are also big enablers, the researchers said.
The researchers found that Africa loses about $25 billion a year, mostly from corporate tax abuse. That equals about 7 percent of the continent’s average tax revenue each year.
Europe loses $184 billion a year, more than half of which is from private tax evasion. The losses equal about 3.4 percent of the region’s average tax revenue.
Asia loses about $73 billion, or about 1.5 percent of the region’s annual tax revenue. North America loses $95 million, or about 2.3 percent.