The real cost of tax dodging; soccer clubs for sale

Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.

TAX JUSTICE

Here’s an interesting statistic: every second, tax dodging by wealthy corporations and individuals costs the world an amount equivalent to the annual salary of a nurse. It takes a complex calculation to arrive at that conclusion, and I have no doubt some people may quibble with it, but the point is an important one. This is a year that has shown us all the value of nurses, so perhaps it’s the year when – as a planet – we all start doing something about this pandemic of tax dodging. I hope so.

The headline figure from the Tax Justice Network’s inaugural State of Tax Justice report is that $427 billion is lost to governments each year through clever tax avoidance and evasion strategies. That is only the direct cost: TJN has not tried to put a figure on the indirect cost that results from countries lowering tax rates and loosening regulations as they attempt to compete with tax havens in the global race to the (non-existent) bottom.

Slightly more than half of the total – $245 billion – derives from multinational companies shifting money through tax havens to minimize the profits they report in places with higher tax rates, and the rest is lost to wealthy individuals stashing their cash offshore.

  • “Higher income countries lose more tax ($382.7 billion) than lower income countries ($45 billion), however, lower income countries’ tax losses are proportionally larger when compared to the tax revenue they typically collect. Lower income countries lose the equivalent of 5.8 per cent of their collected tax revenue whereas higher income countries lose 2.5 per cent,” the report said.
  • “Lower income countries, on average, are losing tax equivalent to nearly 52 per cent of their health budgets, while higher income countries lose the equivalent of 8.4 per cent. Globally, the equivalent of over 34 million nurses’ annual salaries is lost to tax havens each year.”

All calculations of this nature, which inevitably depend on trying to cut through the legal screens erected by oligarchs around their wealth, as well as penetrating the movements of money between subsidiaries of major corporations registered in multiple jurisdictions, are inevitably contested, and this was no exception. It is always possible that this calculation of hidden financial flows, like those by Global Financial Integrity, or the economist Gabriel Zucman before, has missed some pieces of data, since the data is so hard to find. And that may mean the estimated tax gap may in reality over-state (or, indeed, under-state) the severity of the problem.

However, what is certain is that the general picture laid out by the Tax Justice Network’s analysis is correct, not just in terms of the financial number, but in terms of the damage that it causes for governments to lose this volume of revenue.

  • “People suffer needlessly poor public services, needlessly deep inequalities, needlessly high rates of death, needlessly weak and corrupt governments and public administrations. Only tax abusers and the very wealthy in tax havens win, at the cost of everyone else.”
  • “Critically, when less of the benefits remain in a country, it’s women and girls who are more likely to pay the price. When there is less funding for education, it’s more often girls who miss out on going to school. When there is less funding for health services, its girls and women who stay home to look after loved ones instead of going to school or work. And when there is less funding for upholding the rule of law and human rights, it is women and girls who are most likely to see their rights systematically abused and unprotected.”

Regular readers of this newsletter will know that I have a bit of an issue with the European Union’s black list of tax havens, which consists almost exclusively of countries too diplomatically feeble to be able to complain about being added to it. TJN has long put the boot into the list too, and it adds to that again with this report. The main culprits in arranging the tax dodging pandemic are the United States, members of the European Union, or the United Kingdom’s offshore archipelago.

  • “African countries should demand transparency by multinational companies,” wrote Irene Ovonji-Odida, a member of the Independent Commission for the Reform of International Corporate Taxation. “Although 2020 is a uniquely challenging year, the emergence of a new global landscape presents opportunities for African leaders to push for fair, inclusive international tax reform through the UN system in order to provide their citizens with more equitable and resilient societies.”

Considering the fact that Covid-19 is just one of the major crises we currently face as a species, it would be particularly good if action to tackle the global tax gap could fund not just better healthcare, but the battle against climate change. 

  • “In response to the pandemic, it is estimated that G20 countries have used at least $181.43 billion of public money to support fossil fuel companies without any conditionality attached. This public money has taken many forms and includes – but is by no means limited to – tax breaks,” wrote Sara Hall, head of movement and partnerships at Tax Justice UK. “To counter these threats, we believe it is vital that we continue joining up the climate and justice agendas.”

JOIN THE CLUB

It has to be said, however, that the global super-rich don’t currently look very concerned by the prospect of an international tax crackdown somehow targeting a large proportion of their fortunes. This month has seen much conspicuous consumption, including a new record price for a Russian diamond, as well as a flurry of rumored investments in British soccer clubs, which are favorite playthings for the mega-wealthy.

  • “I will buy 35% stake in Arsenal FC,” said the Nigerian senator and businessman Orji Kalu. 

Meanwhile, Juan Sartori – Uruguayan politician, and son-in-law of Russian oligarch Dmitry Rybolovlev – is close to buying an 80% stake in Sunderland FC, and Hollywood royalty stepped in to buy Wales’ own Wrexham FC.

It’s been a good month too for the British government’s favorite Russian-born tycoon, who has finally been confirmed in his position in the House of Lords. The 40-year-old Yevgeny Lebedev will now for the rest of his life be able to vote on laws affecting ordinary British people, having chosen to be known as the Baron of Siberia. I’m not sure if that makes him sound more like a cartoon villain, a Nikita Mikhailkov film, or the love interest in a romantic Victorian novel. Whichever you choose, it doesn’t sound like democracy. 

There is, however, bad news for Richard Branson. Thanks to a local lockdown in New Mexico, he’s unable to indulge in his much-postponed business venture of blasting very rich people (temporarily) into space. Improbably, this slight setback has cost him $200 million.

Still, all is not lost, according to analysis from one bank: “39 percent of people with a net worth of more than $5 million would pay at least a quarter million dollars for a Virgin Galactic flight.” That sounds to me like there are a lot of people out there with large quantities of money that could, perhaps, be put to better use paying nurses.

WHAT I’M READING

I’m currently writing a chapter in my next book about offshore gaming, and I found Rebecca Cassidy’s Vicious Games really helpful to understand the industry. “Commercial gambling and late capitalism are not merely compatible, they are mutually beneficial and rely on the same narratives,” she writes. It’s eye-opening, but – let’s be honest – quite depressing, but then so are most things I read.

See you next Wednesday,

Oliver

The story you just read is a small piece of a complex and an ever-changing storyline we are following as part of our coverage. These overarching storylines — whether the disinformation campaigns that are feeding the war on truth or the new technologies strengthening the growing authoritarianism, are the crises that Coda covers relentlessly and with singular focus. But we can’t do it without your help. Support journalism that stays on the story.

Support Coda

Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.