Global tax evasion is a penalty on health care, education, climate change and more. The world cannot afford it
Hong Kong remains a major tax haven, while Britain, Japan and the US continue to show a real unwillingness to fight financial opacity. The world is losing tax revenues when it needs more money to fight epidemics such as Covid-19 and climate change
Published: 10:15am, 22 Feb, 2020
A protest against tax evasion in Iceland in 2016 following leaked tax documents known as the Panama Papers. Photo: Reuters
The Covid-19 epidemic facing the world, and Asia in particular, shows how linked and dependent we are as individuals and nations, and highlights the desperate need for international regulatory cooperation.
That same strong cooperation is needed to save civilisation from the destruction of public health by rampant tax evasion, which is enabled by secrecy. Despite recent progress, financial opacity remains unacceptably high, according to the Financial Secrecy Index published this week by the Tax Justice Network, a financial advocacy group based in Britain.
Thanks to the courage and energy of journalists and whistle-blowers, global transparency has improved slightly. On average, countries have reduced their contribution to global financial secrecy by 7 per cent since the previous index in 2018. But there is still a lot to do.
Take Hong Kong. It improved its secrecy score after adopting the automatic exchange of financial account information, or AEOI, based on the common reporting standard by the Organisation for Economic Cooperation and Development to promote tax transparency and fight cross-border tax evasion.
But Hong Kong is still a huge player and remains one of the world’s fastest growing tax havens. It remains at fourth place on the Financial Secrecy Index, barely overtaken by the Cayman Islands, the US and Switzerland.
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Hong Kong still offers a wide range of offshore services, including tax exemptions, transfer pricing facilities, escape routes from Chinese exchange controls and various forms of financial secrecy, such as the use of opaque companies and trusts that can assist with tax evasion and other crimes.
In 2018, it had the world’s highest density of ultra-high net worth individuals – people with net assets of at least US$30 million – at 136 per 100,000 adults.
While some Asian jurisdictions opted for more transparency, such as Taiwan, which dramatically reduced its contribution to global financial secrecy, others seem to have adopted the opposite trend, such as Japan, which entered the top 10 list of least transparent countries at No 7.
Along with the US and Britain, Japan is one of the world’s great powers that have shown a real unwillingness to fight financial opacity. The US remains the only large centre to refuse to cooperate in the exchange of financial account information – despite demanding the same from all others, readily resorting to threats.
And Britain has increased its secrecy score more than any other jurisdiction, a trend that is likely to become even more radical with Brexit a reality.
The world cannot afford it. As with managing Covid-19, transparency legislation is vital. It is a crucial tool to combat money laundering, corruption, tax evasion and illicit financial flows. It makes it harder for drug cartels and terrorist groups to hide their capital, and for multinationals to hide their profits to avoid paying corporate taxes.
Today, those large companies contribute even less tax than before the 2008 financial crisis and they continue to shift as much as 40 per cent of their foreign profits offshore.
All countries have the right to be competitive. They can do it in many ways, for example by developing good education, and science and technology systems or creating efficient infrastructure. But stealing tax revenues from other countries should not be allowed.
This is why the international tax system, as unfair as it is outdated, should be completely overhauled, a mission of the Independent Commission for the Reform of International Corporate Taxation.
While Hong Kong, Singapore and Dubai market themselves as international financial services centres, in reality they offer private banking reliant on secrecy and trust services that mostly attract opaque capital flows and wealthy, politically exposed people, especially from developing countries.
As the saying goes: pay taxation, buy civilisation. Health care for all, education for social mobility, a decent social safety net for those left behind, the elimination of political and business corruption, strong public regulation of the environment to mitigate and adapt to climate change – these are what a troubled world needs.
They are the best weapons we have against cynicism, populism and health crises. Without transparency, it is a lost battle.
Wayne Swan is the former treasurer and deputy prime minister of Australia and a member of the Independent Commission for the Reform of International Corporate Taxation (ICRICT)