by GF Integrity · 2015 · Cited by 1 — Net Balance Sheet Position of Major Tax Havens, 2002-2012. This paper takes a balance of payments approach to measuring NRT. The BoP framework.
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Financial Flows and Tax Havens Combining to Limit the Lives of Billions of PeopleCentre for Applied Research, Norwegian School of Economics Global Financial Integrity Jawaharlal Nehru University Instituto de Estudos Socioeconômicos Nigerian Institute of Social and Economic Research December 2015
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Financial Flows and Tax Havens: Combining to Limit the Lives of Billions of People Centre for Applied Research, Norwegian School of Economics Global Financial Integrity Jawaharlal Nehru University Instituto de Estudos Socioeconômicos Nigerian Institute of Social and Economic Research December 2015 Generous funding by the Norwegian Research Council is gratefully acknowledged and appreciated. This report is published under a Creative Commons Attribution license (CC BY). For more information on the license, visit: http://creativecommons.org.
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iiiDecember 2015 We are pleased to present here our report Financial Flows and Tax Havens: Combining to Limit the Lives of Billions of People .This is the most comprehensive analysis of global ˜nancial ˚ows impacting developing countries compiled to date and focuses particular attention on the deleterious effects of offshore tax havens. A portion of licit ˜nancial ˚ows is addressed as well, because with both ˚ow data and deposit data it is often dif˜cult to disaggregate between legally and illegally derived components. Including balance of payments data and bilateral trade data in our analysis means that we are taking into consideration of˜cial development assistance, loans, repayments, debt cancellation, foreign direct investment, portfolio investment, remittances, contributions from religious and charitable organizations, and recorded and unrecorded trade ˚ows, as they are revealed in available databases. Not revealed in available databases are a number of important components of ˜nancial ˚ows: Criminal: It is not clear whether the totality of drug trading, human traf˜cking, counterfeiting, smuggling, and more lead to net transfers into or out of developing countries. Same-Invoice Faking: Bilateral trade data reveal re-invoicing of transactions, usually through offshore entities, but do not reveal misinvoicing within the same documents exchanged between exporters and importers. Intellectual Property and Services: Only merchandise trade is encompassed within the data analysis of trade misinvoicing, and we offer an approximating adjustment for intangibles. Much improved statistical compilation and reporting is required in order to have a more adequate picture of global ˜nancial ˚ows, a task that urgently needs to be undertaken in combination by the International Monetary Fund, World Bank, United Nations, Organization of Economic Cooperation and Development, and the Bank for International Settlements. We offer a number of alternative approaches to analysis of available data. China presents an especially thorny problem because it is the biggest exporter of both licit and illicit capital and because ˜nancial ˚ows through Hong Kong are problematic.
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ivWe de˜ne Net Resource Transfers (NRT) as net recorded ˚ows into or out of a country less out˚ows of illicit capital. We do not net out illicit ˚ows in both directions because illicit in˚ows are unrecorded and do not bene˜t developing countries as do in˚ows of recorded capital. The most revealing picture emerging from this analysis is reproduced below, showing that since the early 1980s, NRT for all developing countries have been mostly large and negative, indicating sustained and signi˜cant out˚ows from the developing world. The NRT line is largely negative regardless of whether it is in nominal terms (green line) or expressed as a percent of developing countries™ GDP (blue line). We estimate that illicit out˚ows account for nearly 82 percent of all NRTs from developing countries. Offshore tax havens, beginning in the 1930s and exploding across the world since, undermine the capitalist system. Adam Smith expected that people of principle and character would operate the free markets he envisioned. Illicit ˚ows, ˜nancial secrecy, and tax evasion have forestalled his ambitions for equitable economic participation by all. At the center of this most unfortunate development sit the offshore centers facilitating criminal, corrupt, and commercially tax evading ˜nancial ˚ows, having their most damaging impact on the poor of the world. It cannot be argued that the small role tax havens may play in legitimate dealings justi˜es their far more damaging role in intermediating illicit ˚ows which are the main drivers of NRTs from developing countries. Our analysis indicates that residents of developing countries held US$4.4 trillion in assets in tax havens in 2011, the latest year for which data is available. Other studies of this phenomenon ˜nd even higher numbers. There is perhaps no greater driver of inequality within developing countries than the combination of illicit ˜nancial ˚ows and offshore tax havens. These mechanisms and facilitating entities bene˜t the richŠwe call them the fi1 percentfl for convenienceŠand harm the middle class and poor. Even the
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viiTable of Contents Executive Summary xiIntroduction 1I. Recorded and Unrecorded Financial Flows to and from Developing Countries 7 i. Recorded transfers (RecT) to and from All Developing Countries .7 ii. Broad capital ˚ight from developing countries 11 iii. Adjustments for services trade and same-invoice faking 16 iv. Net Resource Transfers (NRT) to and from Developing Countries, Excluding China 18 v. Regional NRT .22 vi. NRT and Economic Performance in Developing Economies .23 vii. Criminal Flows: Net in or Net Out? 25II. The Normative Case Against Offshore Tax Havens 29 i. Introduction 29 ii. The Business Model of Secrecy Jurisdictions 31 iii. Evasion of National and International regulation .37 iv. Tax Havens and Developing Countries 42 v. Information Exchange Treaties 49 vi. The Future .51III. The Role of Tax Havens in Financial Intermediation ..53 i. Data sources and limitations .56 ii. Financial Intermediation by Tax Havens: Recorded Investments .59 Conclusion 67 References 71 Statistical Appendix I .77Appendix II. Methodology of Estimating NRT .83Appendix III. NRT Based on Net Capital Flight 93Appendix IV. Financial Flows between selected developing countries and tax havens .101 Glossaries ..109 Glossary of Databases 109 Glossary of Terms 109 Acknowledgments ..113
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viiiCharts and Tables in the Report Table 1. Top Ten Receivers of Recorded Transfers, 1980-2012 8Table 2. Top Ten Providers of Recorded Transfers, 1980-2012 .8Chart 1. Receivers of Recorded Transfers (RecT): All Developing Countries, 1980-2012 ..9Chart 2. Providers of Recorded Transfers (RecT): All Developing Countries, 1980-2012 ..9Chart 3. Recorded Transfers (RecT): All Developing Countries, 1980-2012 ..10 Table 3. Recorded Transfers (RecT) to and from All Developing Countries, 1980-2012 ..11Table 4. Capital Flight from Developing Countries: 1980-2012 13Table 5. Capital Flight Out˚ows as a percent of GDP, 1980-2012 .14Chart 4. Change in External Debt (CED): All Developing Countries, 1980-2012 ..14Chart 5. Trade Misinvoicing (GER): All Developing Countries, 1980-2012 .15Table 6. NRT of All Developing Countries, 1980-2012 .15Chart 6. Net Resource Transfers (NRT): All Developing Countries, 1980-2012 17 Chart 7. Adjusted Net Resource Transfers (NRT): All Developing Countries, 1980-2012 .17 Table 7. RecT to and from Developing Countries Excluding China, 1980-2012 ..18Table 8. Capital Flight from Developing Countries Excluding China, 1980-2012 .19Table 9. Capital Flight Out˚ows as a Percent of GDP, 1980-2012 .20Table 10. NRT of Developing Countries Excluding China, 1980-2012 ..20Chart 8. Net Resource Transfers: Developing Countries Excluding China, 1980-2012 21Chart 9. Adjusted Net Resource Transfers, Developing Countries Excluding China, 1980-2012 .21Table 11. NRT of All Developing Countries by Region, 1980-2012 .22Chart 10. NRT Distribution by Regions, 1980-2011 .22Table 12. Correlations Between Developing Country Flows and Domestic Living Standards, 2000-2012 ..24Table 13. Estimated Values of Transnational Crime .26Figure 1 .46Chart 11. Net Balance Sheet Position of Major Tax Havens, 2002-2012 55Chart 12. Gross Balance Sheet Position of Major Tax Havens, 2002-2012 .55Table 14A. Portfolio Investment in Tax Havens, 2009-2012, year-end stock .59 Table 14B. Tax Havens™ Portfolio Investment, 2009-2012, year-end stock ..59 Table 15A. Direct Investment in Tax Havens, 2009-2012, year-end stock 60Table 15B. Tax Havens™ Direct Investment, 2009-2012, year-end stock .61Table 16A. Total Assets in Offshore Financial Centers by Region, 2005-2011 .. 63Table 16B. Private Assets in Offshore Financial Centers by Region, 2005-2011 .64Table 17. Total Assets Based on CPIS and CDIS database and IIP/BIS Data ..65Table 18. Broad Capital Flight and Components: Including and Excluding China, 1980-2012 .77Table 19. Recorded Transfers (RecT) and Components: All Developing Countries, 1980-2012 78 Table 20. Recorded Transfers (RecT) and Components: Developing Countries Excluding China, 1980-2012 ..79Table 21. Net Resource Transfers (NRT) and Components: Including and Excluding China, 1980-2012 ..80
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ixTable 22. Net Resource Transfers: All Developing Countries by Region, 1980-2012 ..81Table 23. Balance of Payments, Standard BPM5 Presentation, 2002-2006* ..84Table 24. Detailed Components of Net Recorded Flows (BPM6) ..85Table 25. Ghana: Net Current Transfers, Net Capital Transfers, and Financial Account Balance ..86Table 26. NRT of All Developing Countries, 1980-2012 .94Chart 13. NRT: All Developing Countries 94Chart 14. NRT, Adjusted: All Developing Countries .95Table 27. Broad Capital Flight and Components: Including and Excluding China, 1980-2012 ..96Table 28. Net Resource Transfers (NRT) and Components: Including and Excluding China, 1980-2012 ..97Table 29. Broad Capital Flight (Net) as Percent of GDP: Including and Excluding China, 1980-2012 ..98Table 30. Net Recorded Transfers: All Developing Countries by Region, 1980-2012 ..99Table 31. FDI net from Brazil to Tax Havens Œ from 2008 to June/2013 ..102 Table 32. FDI net to Brazil from tax havens Œ from 2008 to June/2013 103 Table 33. FDI net from Chile to Tax Havens Œ from 2009 to 2012 . 104 Table 34. FDI net to Chile from tax havens Œ from 2009 to 2012 ..105 Table 35. India: Cumulative FDI (Equity) In˚ows from Tax Havens, Apr. 2000 Œ Jan. 2013 106 Table 36. Nigeria: Transactions with Tax Havens, Cumulative 2007-2011 Out˚ows ..107 Table 37. Nigeria: Transactions with Tax Havens, Cumulative 2007-2011 In˚ows .108
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