Nearly three quarters of global corporate tax losses are due to tax havens, jurisdictions with low tax rates, often below 10%. The latest report by the Tax Justice Network (TJN) ranks Luxembourg as one of the ten biggest contributors to the global problem of tax havens and financial secrecy--regardless of the standard adopted by the international community, which does not include the country in the list of tax havens.
This situation is largely attributed to the opacity of Luxembourg’s financial system, which according to the Financial Opacity Index 2022 scores 55, placing it among the 20 most opaque nations in the world.
Luxembourg, alongside the UK, the Netherlands and Switzerland, forms what the report describes as the “axis of tax evasion.” Together, these countries are responsible for 33% of corporate tax losses. The TJN’s Tax Haven Index for Business 2024 reveals that this coalition is also responsible for 46% of the world’s corporate tax abuse risks.
A new charter
Every year, countries lose $492bn in tax a year to multinational corporations and wealthy individuals using tax havens to underpay tax, says the Tax Justice Network. Two-thirds of these losses, or $347.6bn, are attributable to tomultinational corporations shifting profit offshore to underpay tax. The remaining $144.8bn is due to “wealthy individuals hiding their wealth offshore.”
Almost half of these losses come from eight countries that oppose the adoption of a tax treaty under the aegis of the UN: Australia, Canada, Israel, Japan, New Zealand, South Korea, the United Kingdom and the United States, says the report. These “harmful eight,” according to the Tax Justice Network, cost the world $212bn in lost tax revenue every year.
In its quest for equitable reform, the United Nations is proposing a convention that would give developing countries stronger means of combating tax evasion. Unlike the OECD’s flexible approach, the UN convention would be legally more binding, and would extend the scope of the new regulation to renewable resources in recognition of their growing importance in the global energy mix.
Despite the support of 110 countries last August, the eight opponents have blocked the negotiations. These countries, responsible for a disproportionate share of global tax losses (43%), represent barely 8% of the world’s population. The United Kingdom, for example, and its dependent territories alone account for $129bn in tax losses, or 26% of the world total.
“Multinationals are transferring more and more profits to tax havens and paying less tax, illustrating the failure of the OECD’s attempts at reform,” says the report. In view of this, the TJN is calling on countries to support the negotiations: “Governments now have the opportunity to make a different choice at the UN: to use taxation to protect people, economies and the planet.”
The negotiation of a UN convention would make it possible to avoid tax losses estimated at nearly $5trn to tax havens over the next ten years, according to the NGO.
. However, the figures for companies are based on data recently published by the OECD, dating from 2022 (although a large number of countries have not yet provided their data). For individuals, the NGO used data on bank deposits available from the Bank for International Settlements (BIS).
This article was originally published in .