Global investment flowing through tax havens grows by $700bn

8 Feb 17

The portion of global investment flowing through tax havens has risen by $700bn in two years, according to an analysis by ActionAid.

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Hamilton, Bermuda

British overseas territories like Bermuda are some of the world's most prolific tax havens.

 

The NGOs evaluation of data from the International Monetary Fund evidences a 5% increase in investment moving through tax havens between 2013 and 2015, from $11.8tn to $12.5tn.

ActionAid said this growth was notable because in 2013, G8 leaders signalled a renewed commitment to crack down on tax evasion and avoidance, in particular large companies that secreted their profits in tax havens.

Not all of the money passing through a tax haven is related to corruption, or the evasion or avoidance of tax. However, the portion that is illicit represents a substantial loss for developing countries, which are the most exposed to such financial flows.

ActionAid estimates that in 2015, $132bn worth of corporate investment in India was routed through tax havens, $106bn in Indonesia and $35bn in Nigeria.

The NGO pointed out that Nigeria has one of the world’s highest child mortality rates in the world, with more than one in ten children dying before the age of five. It said the country’s under-resourced health system could not live up to the challenge posed by corrupt capital flows.

Developing countries lose around $200bn every year as a consequence of international corporations using tax havens to shirk their tax bills, according to estimates from the IMF.

Speaking at a debate in London earlier this week, Dorcas Erksine, Action Aid UK’s director of policy, advocacy and programmes, said she had seen firsthand the impact this could have on women and girls who had been the victims of violence.

For example, underfunded health systems were unable to offer such patients medication to ensure they did not contract HIV after being raped. “These are life or death issues,” Erksine said.

ActionAid published its analysis to coincide with a meeting between UK prime minister Theresa May and the leaders of Britain’s overseas territories in London today.

Some of these, including the British Virgin Islands, Bermuda and the Cayman Islands are some of the most prolific tax havens in the world, with the BVI at the centre of scandals such as the Panama Papers.

They also served as some of the major vehicles for channelling corporate investment in 2015, according to ActionAid, with $1.1tn moving through the BVI, $710bn through Bermuda and $568bn through the Cayman Islands.

The UK has come under significant pressure in recent years to bring its overseas territories and crown dependencies in line with international best practice on transparency. Campaigners have called for measures to ensure these jurisdictions aren’t used for tax dodging.

According to a poll also published today by ActionAid, 72% of the country’s MPs believe that UK companies with subsidiaries in tax havens should be required to explain what those subsidiaries are used for.

Another 56% of MPs backed the idea that, before the UK leaves the European Union, the government should set a date by which it will require UK-linked tax havens such as the BVI and Bermuda to publicly reveal the true owners of the secretive companies they host.

Many argue the overseas territories resist such calls because their economies are built on the sale of financial secrecy.

But speaking alongside Erksine at the London debate earlier this week, Chris Morgan, global head of tax policy at KPMG, argued that not all tax havens facilitate corruption, and not all the money moving through them is corrupt.

He stressed many of the jurisdictions “serve a purpose” as a conduit for cross-border flows of money – where there is no need to add another layer of tax on cash that is subject to the right levies in either the source or destination country.

Charlie Elphicke, a UK MP who serves on the country’s public accounts committee, noted that there were a number of other tax havens closer to home, including Luxembourg and Switzerland, which should be treated equally firmly.

Elphicke is one of 80 MPs backing an amendment to the UK’s recent criminal finances bill to force Britain’s 14 overseas territories to publicly reveal the true owners of secret companies registered in their jurisdictions. 

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