by David Kavanagh

The use of tax havens by hundreds of multinational corporations worldwide is one of the main causes of rising global inequality, according to a recent 44-page report by international not-for-profit Oxfam.

Based on research by economist Gabriel Zucman, An Economy for the 1% reveals that corporate tax-dodging costs developing countries at least $100 billion annually.

In an opinion piece for Al Jazeera, Oxfam International’s executive director Winnie Byanyima called on the international community to step up its effort at curbing tax avoidance and bridging the extreme wealth gaps between the world’s rich and poor.

“Trickle-down economics is a fallacy… the rich can no longer pretend their wealth benefits the rest of us,” she wrote.

“Our governments – which are meant to represent our interests – need to shun the vested interests of the richest by stopping the race to the bottom on tax and pulling back the curtains on shady financial dealings.

“If inequality is not dealt with, we could see more social unrest across the world, a brake on growth and all the work that has been done in the last quarter-century on poverty halted – potentially reversed.”

Wealth gaps widening

Last year, the World Bank announced that global extreme poverty had fallen from 29% in 1999 to under 10% (or about 702 million people living below the line) in 2015.

But while poverty has generally decreased, the world’s wealth has risen drastically, and inequality is higher than it has ever been.

In 2010, 388 individuals possessed as much wealth as the world’s poorest 50% (or 3.6 billion people by today’s population).

Only five years later, that number substantially decreased to 62 individuals owning the same amount.

Furthermore, by Oxfam’s estimates, if the gap between rich and poor had not widened as drastically as it did between 1990 and 2010, an additional 200 million may have also escaped poverty, bringing the stats down more so.

What are tax havens? How do they contribute to global inequality?

Put simply, tax havens are financial institutions, shelters, shell companies or offshore accounts that corporations and individuals can use to store their funds in (at least on paper) without having to pay national taxes within other countries.

They exist in places such as the Cayman Islands and Luxembourg and are used by at least 350 multinational corporations (according to the 2014 Luxleaks), including business giants like Google, Amazon, Facebook, Apple, Starbucks, and Walt Disney to name a few.

At present, approximately $7.6 trillion of individual’s wealth sits in tax haven accounts offshore, a sum that would generate about $190 billion if it were subject to taxation.

The United States government alone would be owed around $620 billion worth of federal taxes if its biggest 500 corporations were not keeping a further $2.1 trillion of wealth overseas.

These numbers may increase even more – between 2000 and 2014, corporate investment in tax havens expanded.

While defenders of tax havens say they facilitate a smoother flow of capital around the globe, opponents argue that when corporations work around taxes and financial regulations put in place by governments, the less fortunate are generally affected the most.

According to Oxfam US policy director Gawain Kripke, this is because the large loss of funds that results from already wealthy corporations avoiding taxes deprives governments of revenue needed to provide basic services that could benefit the wider population.

“It’s starving key programs that help everybody, but especially poor people, get on their feet,” Mr Kripke said.

“This is true in both rich and poor countries, but you see it most acutely where poor countries have no health care system, where large numbers of students are either getting no education or a very poor quality education.

“That’s where it becomes a moral issue.”

Furthermore, since so many firms aren’t paying their fair share, ordinary people are required to shoulder the burden and pay increased taxes from their own wallets.

What is to be done?

Efforts to mitigate the severe consequences of tax avoidance have already started with the international community enshrining their opposition to inequality and poverty in the 2015 Sustainable Development Goals and G20 nations agreeing to some measures to make tax-dodging more difficult.

According to Mrs Byanyima, however, a lot more has to be done.

This week, Oxfam representatives will be attending the World Economic Forum in Davos-Klosters, Switzerland to pressure governments and firms to “play their part”, a seemingly important venture given that nine out of 10 WEF partners exist in at least one tax haven themselves.

“The second order challenge is how to create black lists and pressure on tax havens to at least be more transparent,” said Mr Kripke.

“If not to shut it down, to make it more difficult or impossible to use strategies that many wealthy people and corporations are using to avoid taxes.”

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