New report into the UK's Overseas Territories and developing countries
"When foreign investors make extensive use of offshore companies, shell companies and tax havens, they weaken disclosure standards and undermine the efforts of reformers in Africa to promote transparency. Such practices also facilitate tax evasion and, in some countries, corruption, draining Africa of resources that should be deployed against poverty and vulnerability’."Many of the world's most important tax havens - between a third and a half, depending on how it is measured - are British Crown Dependencies or Overseas Territories, partly independent from Britain, but also closely linked to the UK via a web of constitutional links.
The crucial part to know here is that Britain has complete power to disallow the offshore secrecy (and other) legislation that these places put in place. In a very important section entitled The UK's role, it notes:
"In the most recent White Paper on the BOT [British Overseas Territories] it was confirmed that ‘[As] a matter of constitutional law the UK Parliament has unlimited power to legislate for the territories’.The UK has hitherto chosen not to intervene, in almost every case - but there are isolated cases, not related to offshore secrecy, where the UK has forced the islands' hands.
So it is wonderful that influential organisations are now starting, for the first time (spurred in part by long-running work by TJN and by books such as Treasure Islands) to take a long hard look at Britain's role in development. The new report notes that it:
"attempts, for the first time, to quantify the role that tax havens to which the UK is constitutionally linked play in facilitating the flow of FDI into developing countries, dwarfing that of the BRICS nations."Anything like this is, as we have noted in our own research, an exercise in night vision, so precision is hard to get. But this is a very useful piece of new research. And it's topical too, as the report's author Joseph Stead notes:
"The UK as G8 chair has never been in a stronger position to end the grave injustices caused by tax havens – if the UK succeeds in putting its own house in order first. The Prime Minister must do everything he can to get UK havens agreed on a tax deal before he arrives in Northern Ireland, so he can push the G8 to end the tax scandal."Quite so.
There is an absolute ton of useful information in here. We will merely scratch the surface, and highlight a few fascinating details, such as this one:
Three of 14 British Overseas Territories, in particular the British Virgin Islands (BVI), Cayman Islands and Bermuda emerge as among the biggest global sources of FDI. Together with the Crown Dependencies of Jersey, Guernsey and the Isle of Man, they were in 2011 the largest provider of FDI to the developing world. . . and this remarkable fact is backed up by an equally remarkable table:
We've seen isolated information on this before -- such as in this French report, for instance -- which was surprising enough, but we've never seen the data collated like this.
In short, tax havens are conduits for a large share of foreign direct investment around the world - but the share is much bigger when just developing countries are considered. Nearly half the investment from the highly secretive British Virgin Islands, for instance, goes to developing countries, and outward FDI from the BVI was equivalent to over 860 times (NB, that's not 860 percent, but 860 times!) the BVI's GDP. (By comparison, the UK has a ratio of around 1:1 and the US around 0.2:1.) That is astonishing.
The report outlines a number of reasons why the tax havens may be so important, ranging from a desire for a more secure legal environment to the more nefarious round-tripping, tax dodging and corruption. Secrecy automatically facilitates and promotes these.
The report notes that the IMF and others have been woefully lax in collecting data on this; the report's authors had to go to individual countries to find out the totals. Shame on them. The OECD, it says, has the overwhelming role in designing international the corporate tax system - but this is highly problematic given that while the OECD is a club of rich countries, it is the poorer countries that are disproportionately the victims of this. Much more transparency is obviously needed too.
An extremely useful overall contribution to the literature.