Overseas UK territories and corporate tax abuse

The British Virgin Islands, Cayman Islands, and Bermuda have been highlighted as the top jurisdictions aiding corporations in underpaying taxes. According to the TJN, these territories are often referred to as part of the UK’s “second empire,” contributing to an estimated $84 billion in lost corporate taxes annually for other nations. The TJN’s methodology evaluates various jurisdictions based on their tax laws and the volume of financial activity, ultimately ranking them on their potential for enabling tax avoidance. While the UK government defends its compliance with international tax standards, critics argue that the existing frameworks, such as the OECD’s Common Reporting Standard, are insufficient to effectively curb tax evasion and avoidance.

Key Findings from the Tax Justice Network

• Ranking of Territories: The British Virgin Islands, Cayman Islands, and Bermuda are ranked as the most complicit in corporate tax abuse, with the UK itself positioned at 18th.
• Global Impact: The UK and its territories collectively account for about 33% of global corporate tax avoidance risks.
• Financial Activity Monitoring: The TJN index assesses jurisdictions based on over 70 questions across 18 indicators, measuring how their laws facilitate corporate tax abuse.

Responses to Criticism

Despite the TJN’s findings, some governments within the territories assert that they comply with international tax standards. For instance, the UK Foreign, Commonwealth and Development Office emphasizes adherence to the Common Reporting Standard, which aims to increase transparency about tax matters globally. However, the TJN and other critics argue that these measures do not adequately address the systemic issues of tax avoidance facilitated by these jurisdictions.

Broader Implications

The ongoing debate highlights a tension between national tax policies and global standards for corporate taxation. The TJN advocates for a more robust international regulatory framework, suggesting that the United Nations could play a crucial role in establishing equitable tax practices worldwide. The potential for significant financial losses to tax havens over the next decade underscores the urgency of addressing these challenges in international tax policy.