The Scourge of Tax Havens

From 2010 to 2019, Amazon, one of the biggest companies in the world, paid an effective tax rate of 13 percent — lower than that of your average nurse or teacher. In the same period, Apple managed to store a mountain of over $250 billion in offshore bank accounts. And in 2020, fifty-five of the biggest corporations in the United States, including FedEx and Michaels Stores, paid a grand total of zero dollars in taxes.

Since the 1980s, the unfettering of global capital and the rise of multinational companies have empowered both individuals and corporations to shift their wealth across borders in search of the lowest tax rates. This dynamic, much as with labor and environmental standards, has created a “race to the bottom” where countries are forced to compete to lower their taxes in order to attract private investment. In addition to a downward pressure on tax rates across the board, certain jurisdictions have found a niche in this ecosystem by taking the race to an extreme: not only lowering their taxes to rock-bottom rates but also creating a regulatory environment of extreme secrecy.

These tax havens or “secrecy jurisdictions” are often small, poor countries desperate for an economic model that will allow them to survive in a world economy that is decidedly unfriendly to aspirations of development. But the real offenders, those culpable for the system itself, are the wealthiest nations. Global North countries are not only home to many of those who make most use of the tax haven system, they also built the neoliberal world order from which it emerged, host the lawyers and accountants that facilitate its abuse, and are themselves home to some of the most egregious secrecy jurisdictions in the world (see South Dakota).

The details of global tax policy are esoteric, but the general upshot is clear: those with the resources get to play by a different set of rules than the rest of us, moving, stashing, or disguising their finances away from the prying eyes of the public. In some cases, this secrecy allows them to hide the fact that they are breaking laws, but, more often than not, their abuses are entirely legal.

Taken together, the global tax system is a paradigmatic case of the neoliberal model of globalization: capital has been empowered to move swiftly between countries while democratic control has been systematically eroded. The results are insidious: trillions of dollars of lost tax revenue that could otherwise be spent on public health, education, climate action, or development; wealth equivalent to 10 percent of world GDP sitting in untouchable and secretive hoards; a corrupt political elite shielded from scrutiny; critical matters of public interest, such as which private equity funds hold controlling stakes in government debt, shrouded in secrecy; and a deepening of extractive colonial relations between the Global North and South.

This is not a case of a few legal loopholes eating marginally into national tax revenue; it’s a fundamental question about the democratic control of resources — and the siphoning of socially created wealth into the bloated coffers of the corporate elite.

By Rich Countries, for Rich Countries

Earlier this year, the Biden administration announced its support for a solution: a global minimum corporate tax rate.

This was, by all accounts, a momentous shift. While Global South leaders have long called for action on tax abuse, and proposals for multilateral solutions had moved in fits and starts, leaders in the North had largely failed to move beyond rhetoric. The Biden administration’s proposal was a stunning recognition of the disastrous neoliberal status quo, and a seemingly meaningful commitment to concrete action. In the words of Alex Cobham of the Tax Justice Network at the time, “If you blinked recently, you might have missed the idea of a global minimum tax rate for multinational companies, as it shifted almost imperceptibly from the wild margins of tax justice, to becoming the settled will of the world’s richest countries.” This would, even if implemented perfectly, be only a partial solution to one set of the many interlocking problems endemic to the global tax system, but it would be an important one.

With US support, things have moved quickly. After initial talks among the G7 and G20, negotiations have ultimately incorporated 140 countries and jurisdictions in a preexisting process led by the OECD — an organization of the world’s richest nations. The OECD plan has two pillars. The first creates new measures to ensure that large, digitally based businesses pay more of their taxes in the locations where they actually do their business rather than where, through tricks of accounting, they claim their profits on paper. The second is the more ambitious global corporate minimum tax rate, which would put a floor on the global race to the bottom by ensuring that, no matter where a corporation shifts its profits, it must pay a certain minimum effective rate.

In theory, these are major steps forward. But the devil is in the details. Under the plan announced Friday, Pillar One limits its scope to only one hundred companies and sets a woefully inadequate 20–30 percent of profits for reallocation. Worse, the agreement would require countries to give up the taxes that they have already individually put in place on digital commerce. With these factors combined, Pillar One would leave many countries, especially lower-income countries, with less tax revenue than before.

Pillar Two, meanwhile, sets the minimum at an abominable 15 percent. Most egregiously, under the pillar’s formula for distribution, countries in which the corporations are headquartered, rather than where they do their business, receive the lion’s share of the recouped revenue. According to Tax Justice Network estimates, this would leave the G7 countries — with just 10 percent of the world’s population and the bulk of the responsibility for the broken status quo — with a stunning 60 percent of the revenue.

Throughout the negotiation, the Global South has fought for higher taxation rates and a greater share of revenue. But time and again they have been sidelined or, worse, strong-armed into compliance. As it became clear that the process wasn’t going in their favor, the G24, a grouping of the world’s developing countries, and the South Centre, an independent policy think tank established by and for the Global South, took the rare step of publicly calling for urgent changes. Argentina, in particular, has vocally decried the plan’s inequities, while Kenya, Nigeria, Pakistan, and Sri Lanka have refused to sign on.

In the end, though, most of the world has come on board out of a sense of resignation to the idea that even a flawed change is better than the status quo. The risk is that it’s not — that the result of the OECD process will lock in this new system for years to come while leaving little incentive for Global North nations to come back to the table down the line. In short, in a process run by rich countries, rich countries won.

The Post-Neoliberal Era?

If the global tax system is a paradigmatic case of neoliberal globalization, then the OECD tax deal is the shifting of the world order in miniature.

Reports of the death of neoliberalism were exaggerated to begin with, but to the extent that they’re true — that Joe Biden and other Northern leaders are increasingly willing to curb the worst excesses of the neoliberal order — the OECD proposal reminds us that this turn away from neoliberalism is not the same as the emergence of a more equitable alternative. Rather, the reassertion of state power over global capital is in service of state-led economic nationalism and zero-sum exploitative relations over the South.

This dynamic is not limited to taxation. In response to the pandemic, wealthy nations have made large and, by the standards of the last few decades, unprecedented fiscal interventions to stave off economic collapse. The Global South has not been afforded the same chance. Debt, fear of credit ratings downgrades, and IMF loan conditions combine to restrain Global South nations from taking exactly the types of fiscal stimulus measures that Global North nations are now comfortably adopting, and the North has done little to change that. Similarly, Joe Biden’s signature Build Back Better agenda and other Democratic policy priorities have put industrial policy back on the agenda for the United States. But that hasn’t stopped the Biden administration from casting China’s successful industrial policy regime as illegitimate. The majority of the Global South, bound by the conditions of IMF loans, the whims of financial markets, and the rules of global trade, would never even get the chance to try.

Perhaps “US empire lives on” is not a novel insight. But the OECD tax policy debacle is a valuable reminder that simply turning away from neoliberalism is not enough. We must fight for an alternative.

Global Justice on the South’s Terms

The OECD agreement has not yet gone into effect, and the road to implementation is rocky and convoluted. But the chances of salvaging tax justice from the deal are now gone — and a process in the hands of the wealthiest countries may have been doomed from the start. Since well before the current OECD process, Global South nations have fought to put the problem of tax havens on the agenda of the United Nations. Though far from perfect, this would establish a much more even playing field than a process led by a grouping of the world’s richest countries. Launching a new global tax body under the United Nations — as things stand, a distant hope — would be a critical step toward ending the global scourge of tax havens and setting the world on a path to tax justice.

Whatever the specific form of the policy or process, it’s clear that we won’t get there if rich countries are dictating the terms. Even where leaders like Joe Biden may be willing to contravene the strictest of neoliberal doctrines, the alternative of economic nationalism and the reinforcement of neocolonial relations is equally unacceptable. Our task, as the Left in the imperial core, is not to convince our oligarchs that neoliberalism is not in the national interest. It’s to build power for radical change in alliance with, and following the leadership of, the Global South. Tax justice is only the start. Exploitative debt burdens, the insidious power of the World Bank and IMF, the corporate-first trade regime, the stranglehold of the global intellectual property monopoly — the entire global economic architecture — must be transformed. Whether a decolonial Global Green New Deal, a Green New International Economic Order, or a new vision entirely, we can build a global economy that works for the many — where aspirations of development are allowed to flourish, where corporate power is subordinated to democratic control, where the wealth created by the people remains with the people.

The leaders of rich countries can’t be trusted to fix the broken world order. But, together with our comrades in the Global South, we can build a new one.