By
Andi M. Ilham
Africa-Press – Lesotho. Following the 1990s and the wave of U.S. engagement with unipolarity in foreign economic policy, one of the most influential literatures in tax havens was Hines and Rice’s pioneering study in 1994, Fiscal Paradise: Foreign Tax Haven & American Business. A decade later, especially following the financial crisis 2008, study in tax havens tended to adopt a dichotomous view, depicting them as either wholly negative or wholly positive, without acknowledging the complex realities in between. Yet, today, scholarship in tax havens began to integrate with the complex welfare & inequality discourse, particularly encouraged with the Gabriel Zucman’s groundbreaking works in global wealth & inequalities.
One must acknowledge that the existence of tax havens goes hand in hand with the operation of offshore financial services. The volume of global capital flowing through offshore financial centres is far from marginal and contested a significant power in shaping the contemporary architecture of global capitalism after the post-GFC 2008. Given that, offshore centres have enabled amount of ultra-wealthy individuals to hide their riches from the state, accounting nearly 8-10% global GDP. As Gabriel Zucman’s work reveals, the issue of the authority relations of tax havens and offshore financial centres therefore became one of the substantial concerns in the 21st-century discourse on inequality.
One of the reasons before the world consider how tax haven bring complications, the world needs to back its step to see that they fundamentally facilitate the game of profit shifting by Multinational Corporations (MNCs). Without doubt, it was one of the biggest reasons why the OECD spearheaded global tax multilateralism with BEPS 1.0. Since then, the perspective of tax havens in the early timeline of OECD’s tax multilateralism became a black-and-white view. Now, one new book, Research Handbook on the Economics of Tax Havens, by Edward Elgar Publishing, released in 2024, brings a necessary view to understand a new landscape of tax havens.
This book presents a contemporary overview and analytical approach to tax havens & MNC’s tax avoidance, in the wake of global corporate tax regime, the OECD BEPS 1.0 & 2.0. Moreover, this research guidebook on tax havens also come out after the timeline of two spectacular giant data leaks, Panama Papers in 2016 and Pandora Papers in 2021, that brought renewed attentions to offshore financial secrecy. It explores the impact of tax havens on corporate taxation, personal income, business models, and regulatory responses.
While dominant literature draws attention to the losses societies experience because of MNCs’ tax avoidance, one chapter in this book offers a counter-narrative point, titled the real effects of tax havens. Similar to In praise of tax havens by Hong and Smart in 2010, this new finding shows certain socio-economic advantages linked to the use of tax havens. Using beyond a zero-sum transfer of the tax base, this discovery revealed that use of tax havens is meaningfully affected to innovation and sales in firms. By providing the evidence of how havens use’ effect in the real activity of the profit-shifting, this research also opens the door for the future research, especially through a careful cost-benefit analyses between profit-shifting and real economic activity.
In addition, one finding about multinationals’ operation in tax havens, Multinational firms in tax havens: corporate motives, regulatory countermeasures, and recent statistics, highlighted a striking figure. By 2015, multinational corporations (MNCs) held more than 50,000 legal operations in tax havens. This number stayed stable up to 2021, with about 30,000 concentrated in the Big-8 tax haven jurisdictions. Within this data, it can be said that the growth of activated bilateral and multilateral tax information exchange, Country by Country Report (CbCR) regulation, arguably contributes positively to reducing profit shifting.
In the end, since the world has entered an era of escalating global tax cooperation, it is true that the significant progress has done to limiting profit-shifting. Yet, loopholes can still be there, as havens’ users continue to adapt and refine their business and tax strategies. Fundamentally, the assessment of tax havens’ costs and benefits varies depending on the country and the analytical framework applied. So, while academia has expanded their mainstream as well as alternative thought to the landscape of tax havens, the tax havens continue as the quiet architect of global inequality, casting long shadows over an unequal world.
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