Globalization, Taxes & Inequality - global-tax-avoidance ...
Transcript of Globalization, Taxes & Inequality - global-tax-avoidance ...
Globalization, Taxes& Inequality
Gabriel Zucman(UC Berkeley and EU Tax Observatory)
September 27th, 2021
Introduction
Globalization has created new ways to avoid taxes:
. Multinational firms shift profits to low-tax places
. Countries compete by cutting their tax rates
. Wealthy households can move assets to tax havens
How does this tax avoidance redistribute income betweennations and between social groups?
What policies and institutions can help address it?
This talk
This talk is based on work with 15+ co-authors overseveral years, and draws more particularly on:
. “The Missing Profits of Nations” (w. Tørsløv, Wier)
. “Tax Evasion & Inequality” (w. Alstadsæter,Johannesen)
. First reports and ongoing work of EU Tax Observatory
Two goals of this research agenda:
. A macro-distributional analysis of globalization
. Re-thinking the different possible institutional pathsfor sustainable global economic integration
The Missing Profits of Nations
How much profits move across countries because ofdifferences in corporate tax rates?
. Firms move capital to low-tax countries
. Firms shift paper profits to tax havens
If there was a perfect international tax coordination:
. Which countries would gain/lose profits?
. How? Relocation of capital, or reduced profit shifting?
How we estimate the amount of profitsshifted to tax havens
We compute capital shares α in foreign vs. localfirms across the world. Striking global pattern:
. Foreign firms have lower α than local firms...
. ... Except in tax havens: hugely higher α
Benchmark estimate: set profitability of foreign firms inhavens equal to profitability of local firms in havens
. Transparent
. Robust
Main results
Close to 40% of multinational profits (≈ $900bn in2018) shifted to havens
. Main winners: Ireland, Luxembourg, Singapore, etc.(impose low rates but on big base)
. Main losers: high-tax EU countries
. Profit shifting swamps tax-driven tangible capitalmobility (different welfare implications)
. Rise of capital share is higher than in official data →provide corrected estimates of α, GDP, trade
In tax havens, foreign firms are muchmore profitable than local firms
1675%
0%
200%
400%
600%
800%
Puerto
Rico
Irelan
d
Luxem
bourg
Switz
erlan
d
Singa
pore
Hong K
ong
Netherl
ands
Belgium
United
State
s
Austra
lia
United
King
dom
Spain
Japan
France
German
y Ita
ly
Pre-tax corporate profits (% of compensation of employees)
Foreign firms
Local firms
In tax havens, foreign firms are muchmore profitable than local firms
Belgium
Ireland
Switzerland
Luxembourg
Netherlands
Andorra
Anguilla
Antigua and Barbuda
Aruba
Bahrain
Belize
Bermuda
Bonaire
Curacao
Cyprus
Jersey
Grenada
GuernseyGibraltar
Hong Kong
Isle of man
Lebanon
Macau
Malta
Monaco
Sint Maarten
Seychelles
Singapore
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Turks and Caicos
Panama
Puerto Rico
-400%
100%
600%
1100%
1600%
2100%
-5% 0% 5% 10% 15% 20% 25% 30% 35%
Prof
it-to
-wag
e ra
tio in
fore
ign
firm
s min
us in
loca
l firm
s
Effective corporate income tax rate
Who loses the most profit? The EU.
0%
5%
10%
15%
20%
25%
30%
35%
40%
EU US Developing countries Rest of OECD
% o
f to
tal p
rofit
s sh
ifted
to ta
x ha
vens
Where do the shifted profits come from?
Who loses most? The EU.Who shifts most? US multinationals.
0%
10%
20%
30%
40%
50%
EU US Developing countries Rest of OECD
% o
f to
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rofit
s sh
ifted
to ta
x ha
vens
Allocating the profits shifted to tax havens
Where the shifted profits come from
To whom the shifted profits accrue
The redistributive effects of profit shifting
Redistribution across income groups:
. Rise of global after-tax profits → rising income forshareholders
. Equity ownership tends to be highly concentrated
. Even in countries with broad-based pension funds
The concentration of corporate equityownership: the case of the United States
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
Figure 2: Share of pre-tax income earned vs. share of equity wealth owned by the top 1% pre-tax income earners
Equity wealth
Pre-tax income
The redistributive effects of profit shifting
International redistribution of tax revenues:
. Absent international coordination, revenue-maximizingcorporate rate is low for small countries: 0 < τ ∗ < 5%
. Havens with τ ≈ τ ∗ generate large tax revenue at theexpense of other countries, and to the benefit ofglobal shareholders
. Can explain race-to-the-bottom in corporate tax ratesand rise of the supply of tax avoidance schemes
Many havens collect a lot of taxrevenue...
0%
1%
2%
3%
4%
5%
6%
7%
8%
Malt
a
Luxem
bourg
Hong K
ong
Cypru
s
Japan
Austra
lia
Irelan
d
Switz
erlan
d
Canad
a
Belgium
Korea
Singa
pore
Mex
ico
United
King
dom
Netherl
ands
France
Puerto
Rico
Spain
German
y
United
State
s Ita
ly
Polan
d
Corporate income tax revenue (% of national income)
Average among non-havens: 3.5%
... By applying low rates to the large taxbase they attract
0%
20%
40%
60%
80%
100%
Malt
a
Puerto
Rico
Irelan
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Luxem
bourg
Cypru
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Hong K
ong
Singa
pore
Netherl
ands
Switz
erlan
d
Corporate tax revenue collected & tax rate on shifted profits
Revenue collected on shifted profits, % of total revenue
Tax rate on shifted profits
The limits of the development modelpredicated on low corporate taxes
. Offering low effective rate works as long as othercountries accept tax competition
. But this can easily change: cf. current internationalnegotiations on 15% minimum tax
. Even without a global agreement, main headquartercountries could collect the tax deficit of their ownmultinationals...
. ... Making it pointless for firms to book profits in taxhavens
Tax Evasion in a Globalized World:Evidence from Leaks
Tax Evasion and Inequality
Anecdotal evidence that wealthy conceal assets abroad
. How important is this form of tax evasion?
. How concentrated is it?
. How does it change what we know about inequality?
. How effective are recent policy efforts (automaticexchange of bank information)?
Some evidence from Scandinavia
Leaks from HSBC Switzerland and MossackFonseca (“Panama Papers”)
. Leaks random & from big offshore wealth managers
. Match to tax records in Norway, Sweden, Denmark(ongoing work in US)
. Combine with macro stats on wealth hidden in havens
Two findings:
. Offshore evasion highly concentrated
. At the top, larger than evasion detected in randomaudits
The proba to have an unreported HSBCaccount rises sharply within the top 1%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
P90-P95 [0.6 – 0.9]
P95-P99 [0.9 – 2.0]
P99-P99.5 [2.0 – 3.0]
P99.5-P99.9 [3.0 – 9.1]
P99.9-P99.95 [9.1 – 14.6]
P99.95-P99.99 [14.6 – 44.5]
Top 0.01% [> 44.5]
Net wealth group [millions of US$]
Probability to own an unreported HSBC account, by wealth group (HSBC leak)
HSBC evaders hide close to half of theirwealth at HSBC
0%
10%
20%
30%
40%
50%
P90-P95 [0.6 – 0.9]
P95-P99 [0.9 – 2.0]
P99-P99.5 [2.0 – 3.0]
P99.5-P99.9 [3.0 – 9.1]
P99.9-P99.95 [9.1 – 14.6]
P99.95-P99.99 [14.6 – 44.5]
Top 0.01% [> 44.5]
Net wealth group [millions of US$]
Average wealth hidden at HSBC, by wealth group (%oftotalwealth(includingheldatHSBC))
The Panama Papers confirm that the useof tax havens rises sharply with wealth
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
P90-P95 [0.6 – 0.8]
P95-P99 [0.8 – 1.8]
P99-P99.5 [1.8 – 2.7]
P99.5-P99.9 [2.7 – 8.1]
P99.9-P99.95 [8.1 – 13.3]
P99.95-P99.99 [13.3 – 41.4]
Top 0.01% [> 41.4]
Net wealth group [millions of US$]
Probability to appear in the "Panama Papers", by wealth group (Shareholders of shell companies created by Mossack Fonseca)
Amnesty data show widespread evasion atthe top
0%
2%
4%
6%
8%
10%
12%
14%
P90-P95 [0.6 – 0.8]
P95-P99 [0.8 – 1.8]
P99-P99.5 [1.8 – 2.7]
P99.5-P99.9 [2.7 – 8.1]
P99.9-P99.95 [8.1 – 13.3]
P99.95-P99.99 [13.3 – 41.4]
Top 0.01% [> 41.4]
Net wealth group [millions of US$]
Probability to voluntarily disclose hidden wealth, by wealth group (Swedish and Norwegian tax amnesties)
Hidden wealth is highly concentrated
0%
10%
20%
30%
40%
50%
60%
P0-50 P50-P90 P90-P99 P99-P99.9 P99.9-99.99 P.99.99-P100
% o
f tot
al re
cord
ed o
r hid
den
wea
lth
Position in the wealth distribution
Distribution of wealth: recorded vs. hidden
Hidden wealth disclosed in amnesty
Hidden wealth held at HSBC
All recorded wealth
Factoring in offshore wealth is importantto measure inequality at the top
0%
2%
4%
6%
8%
10%
12%
Spain UK Scandinavia France USA Russia
% o
f tot
al h
ouse
hold
wea
lth
The top 0.01% wealth share and its composition
Offshore wealth
All wealth excluding offshore