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EU Spares Trillions Hidden in Tax Havens

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By R. Nstranis
IDN-InDepth NewsAnalysis

BERLIN (IDN) – 'There is no alternative but to cut public spending and development aid' has become a much repeated mantra for governments in the rich countries. But investigations reveal that there is a huge lot of hidden 'private' money that could put an end to extreme global poverty.

According to new figures published on May 22, 2013 by international agency Oxfam, at least $18.5 trillion (18.500 000 000 000) is hidden by wealthy individuals in tax havens worldwide, representing a loss of more than $156 billion in tax revenue, The missing money is twice that required for every person in the world to be living above the $1.25-a-day “extreme poverty” threshold.

"It’s scandalous that so much money is allowed to sit untaxed, letting off the hook those individuals who can most afford to pay for public goods and services;" says Kevin Rousell, Head of Oxfam's Essential Services Campaign

The Oxfam study finds that two-thirds of the global offshore wealth – more than $12 trillion – is hidden in tax havens in the 27-nation European Union, such as Luxembourg, Andorra or Malta. These havens are facilitating the loss of over $100 billion in tax revenues worldwide. A third of offshore wealth is stashed in UK-linked tax havens where it is undeclared and untaxed.

Oxfam explained that it used the list of 50 "offshore jurisdictions" established by the US Government Accountability Office and added two other major tax havens: Delaware and the Netherlands. Of these jurisdictions, 21 are EU-related jurisdictions and 10 are UK (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Montserrat and the Turks and Caicos Islands).

A tax havens crackdown was on the agenda for discussion at the European Union leaders’ summit on May 22, with Oxfam calling for a blacklist of tax havens, and an agreement from EU member states to impose sanctions against tax havens and those using them. The EU failed on this simple task.

In reaction, Catherine Olier, Oxfam's EU Policy Adviser, said: "EU leaders backed the interests of an elite minority, instead of those of the majority of citizens around the world who would benefit from an EU clamp down on tax dodging at a time of widespread public cuts. They failed to agree to set up a public tax havens blacklist and to impose sanctions against tax havens and those using them."

Olier added: "It is encouraging that leaders seem open to greater transparency on the activities of multinationals and are willing to push forward automatic exchange of information between governments within the EU and at the G8 and G20 level. However, it is the world’s poorest who are hit hardest by harmful tax practices, and there is little sign that EU leaders intend to involve developing countries in this global push."

Roussel said: “The UK and Europe cannot stand by while billions is lost from the global public purse on their watch.”

According to Oxfam, the $156 billion of lost tax revenue estimate is just a fraction of the total tax loss, as it only reflects the amount of tax that individuals are neglecting to pay. It doesn’t include the tax dodged by companies and multinational corporations. Their swindling costs Africa alone an estimated $160 billion a year, says Oxfam.

In order to calculate total wealth held by individuals in tax havens, Oxfam estimated that 19.5 per cent of global deposits are held by foreigners in tax havens. The 19.5% figure is based on evidence collected from the Bank of International Settlements (BIS) quarterly reviews (of the external holdings of banks in a set of tax havens) and the estimates of national authorities such as the Dutch Central Bank and IMF for certain countries' compliance with anti-money laundering standards.

Oxfam then applied the 19.5% figure to all assets, because there is no credible data available for the ratio for other financial assets. Tax rates are usually the same for different asset classes (as is the case with capital gains for instance) meaning there is no incentive to prioritize other assets over and above deposits, the international agency explained.

"The 19.5% is a conservative estimate in itself though, because in fact domestic depositors could also be foreign depositors set up as domestic 'fronts'. It is impossible to differentiate between the two because of a lack of transparency," Oxfam says.

The Credit Suisse Global Wealth Databook estimates that total net financial wealth was 2012 to $94.7 trillion (excluding property). "Using the 19.5% proportion, we end up with a total of $18.5 trillion held offshore," says Oxfam.

This is how Oxfam calculated the $156 billion figure:

"We only looked at assets offshore that are not reported to tax administrations (assuming that declared assets are being taxed). Helvea estimates that declared assets represent only 16%, leaving us with an amount of $15.54 trillion (84% of $18.5 trillion).

"We then looked at the assets’ return (the “interest”) generated by having this money in offshore bank accounts. We use a 3.5% asset return as a conservative but appropriate yield, based on Credit Suisse Investment Yearbook 2013 (which says that balanced equity and bond funds would yield 2% real returns, then to get nominal returns we add US inflation of 1.5%). This is a conservative estimate because the current inflation rate is low (it is a current low rate, rather than a higher average of recent rates), and it is lower than the average returns offered by private funds advertised by clients.

"Finally, we looked at individual country tax rates on foreign assets, reported in the PWC World Wide Tax Summaries, and calculated each one individually and then added them up. The total is $156.31 billion." [IDN-InDepthNews – May 23, 2013]

2013 IDN-InDepthNews | Analysis That Matters

Picture: The Cayman Islands is a favorite tax haven. Photo: Kris Fulgham/Flickr | Source: Oxfam

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