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Global Tax Evasion Report 2024

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  • Published
    31st Oct, 2023


The European Union Tax Observatory in its 'Global Tax Evasion Report 2024' has called for a global minimum tax on billionaires equal to 2% of their wealth.

About the report –

The European Union Tax Observatory has released 'Global Tax Evasion Report 2024', which mentioned that:

  • Tax evasion is enabling billionaires to enjoy effective tax rates equivalent to 0% to 0.5% of their wealth
  • Global minimum tax on billionaires equal to 2% of their wealth.
    • The report argues that a 2% tax on billionaires is reasonable, considering that their wealth has grown at an average annual rate of 7% since 1995, while their effective tax rates often remain as low as 0% to 0.5%.
  • Impact of international efforts-
    • The success of automatic exchange of bank information — in reducing offshore tax evasion by a factor of three over the past 10 years.
      • There is still the equivalent of 10% of world GDP in offshore household financial wealth, but only 25% of it evades taxation.
    • Reasons identified by the report for continuation of Tax evasion –
      • Possibility of owning financial assets that escape being reported on because not all offshore financial institutions comply with the requirement of automatic exchange of bank information.
      • Wealthy individuals who used to hide financial assets in offshore banks have started shifting their holdings to asset classes not covered under this agreement, for e.g. – Real Estate.
      • The global minimum tax of 15% for multinational corporations (MNCs), adopted in 2012, has been undermined by a growing list of loopholes.
      • Some MNCs use 'green' tax credits for low carbon transition to reduce their tax rates below the minimum.
    • Emerging Tax Competition: The report highlights the rise of preferential tax regimes in the EU and the UK, targeting wealthy foreign individuals.
  • These regimes offer tax exemptions or reductions to incoming residents but weaken overall tax collection and have negative spill over effects on other countries.
  • Recommendations:
  • Minimum corporate tax of 25% and remove the loopholes that foster tax competition Introduce a new global minimum tax for billionaires equal to 2% of their wealth.
  • Move towards the creation of a Global Asset Registry (International register of all wealth and assets).
  • Institute mechanisms to tax wealthy people who have been long-term residents in a country and choose to move to a low tax country.

What is Tax Evasion?

  • Tax evasion is the illegal act of deliberately and knowingly underreporting, concealing, or misrepresenting information on a tax return to reduce tax liability.
    • It involves activities such as hiding income, inflating deductions, or using offshore accounts to avoid paying the taxes owed to the government.
    • It is distinguished from tax avoidance, which is the legal practice of minimizing tax liability through legitimate means such as deductions and tax credits.

Effect of Tax evasion on Global Economy:

  • Reduced Government Revenue: Tax evasion results in governments collecting less revenue than they are entitled to. This reduction in revenue can lead to budget deficits and limit the government's ability to fund essential public services such as healthcare, education, and infrastructure development.
  • Inequitable Tax Burden: When individuals or businesses engage in tax evasion, the burden of funding government services falls disproportionately on law-abiding taxpayers. This can lead to a sense of unfairness and erode public trust in the tax system.
  • Weakened Social Safety Nets: Lower tax revenues can force governments to reduce spending on social safety net programs like welfare, unemployment benefits, and healthcare. This can negatively impact vulnerable populations and increase income inequality.
  • Reduced Economic Development: Tax evasion can hinder economic development by limiting the government's ability to invest in infrastructure and public services, which are essential for fostering economic growth.
  • Capital Flight: Tax evasion often involves the use of offshore accounts and tax havens. This capital flight can drain resources from the domestic economy, limit investment opportunities, and reduce economic stability.
  • Global Economic Imbalances: Tax evasion can exacerbate global economic imbalances by diverting funds away from countries where taxes are evaded and toward tax havens. This can distort trade balances and hinder cooperation in addressing global economic challenges.

Key International Initiatives and Measures:

Steps taken by India to curb tax evasion:

  • Income-tax Act, 1961 (Search and Seizure);
  • Treaties such as Double Tax Avoidance Agreement (DTAA),
  • Tax Information Exchange Agreement (TIEA),
  • The Benami Transactions Informants Reward Scheme.
  • Reduced base corporate tax for existing companies to 22 percent and new manufacturing firms to 15 percent.
  • Common Reporting Standards (CRS): The CRS is an international framework developed by the Organisation for Economic Co-operation and Development (OECD) to facilitate the automatic exchange of financial information between tax authorities. It requires financial institutions to report account information of foreign taxpayers to their respective tax authorities, which is then shared with the taxpayer's home country.
  • FATCA (Foreign Account Tax Compliance Act): Enacted by the United States, FATCA requires foreign financial institutions to report information about U.S. account holders to the Internal Revenue Service (IRS). Many countries have entered into intergovernmental agreements with the U.S. to implement FATCA's requirements.
  • Base Erosion and Profit Shifting (BEPS): The OECD's BEPS project addresses tax planning strategies used by multinational corporations to shift profits to low-tax jurisdictions. BEPS recommendations aim to close tax loopholes, prevent double taxation, and ensure that profits are taxed where economic activities occur.
  • Double Taxation Treaties: Many countries have double taxation treaties (DTTs) in place to prevent double taxation and promote international cooperation. DTTs often include provisions for the exchange of tax information between countries.
  • Tax Information Exchange Agreements (TIEAs): TIEAs are bilateral agreements that facilitate the exchange of information on tax matters between countries. These agreements are crucial for addressing tax evasion and promoting transparency.

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