Buried beneath the sensational revelations making headlines in the wake of the Panama Papers is a simple truth about the importance of fair and effective tax systems: revenues from taxation — whether from company profits, capital gains or wages — are crucial for maintaining nationwide mechanisms of economic sharing that safeguard the basic needs of citizens. Not only does the redistribution of tax revenue allow governments to fund safety nets and public services designed to keep poverty at bay, it maintains the infrastructure needed to facilitate a wide variety of social and economic activities, from public transport and roads, to schools and hospitals.
The unprecedented leak of files from the offshore law firm Mossack Fonseca reveal that although people and companies can use tax havens for legitimate purposes, too often such mechanisms are abused by those seeking to avoid paying their fair share of tax, potentially depriving the governments of hundreds of billions of dollars in revenues. Unsurprisingly, the call for all businesses and individuals to ‘pay their fair share’ is increasingly popular among tax justice campaigners in the Global North, where governments lose billions each year from tax dodging — even as they reduce public spending on essential services in order to ‘balance the books.’ The rationale for ending tax haven abuse is incontrovertible: recouping the huge sums involved could enable governments to reverse programs of economic austerity, reduce inequality or even help fund innovative public investment programs such as a green new deal.
Globally, economists estimate that $7.6tn worth of assets are held off shore and are thereby avoiding taxation — 25% more than five years ago and equivalent to 8% of the world’s total financial assets. Citizens for Tax Justice have calculated that Fortune 500 companies alone hold a record $2.4tn in offshore accounts, which they argue allows them to avoid almost $700bn in US federal income taxes. Most recently, Oxfam have estimated that the 50 largest US companies have $1.4 trillion hidden in Tax havens, which costs the US government approximately $111 billion each year. In the EU, governments are reportedly losing out on revenues of between 50-70bn euros ($56-79bn).