An analysis of the G20 crackdown on tax havens has found little economic benefit in bilateral treaties, with evaders just shifting billions of dollars to other countries.
Dr Gabriel Zucman, from the London School of Economics and Political Science and UC-Berkeley, says hundreds of treaties signed by the world’s major tax havens agreeing to share bank information on request have failed.
“Rather than repatriating funds, tax evaders have simply transferred their deposits to havens not covered by a treaty with their home country,” he writes in a paper published today in the American Economic Journal, co-authored by Dr Niels Johannesen.
The LSE economist claims that modern technology has made it easier for tax evaders to move funds offshore.
Despite tax havens being compelled to sign treaties in the aftermath of the global financial crisis, figures show that the agreements have had only a “modest impact” on bank deposits in these countries.
Dr Zucman compared bilateral bank deposit data for 13 major tax havens, including Switzerland, Luxembourg and the Cayman Islands.
“Since the start of the crackdown, the global value of deposits held offshore has not decreased. The money has just been shifted around,” he says.
Around 8 per cent of global household financial wealth is held in tax havens, equating to substantial revenue losses for governments.
Dr Zucman says the difficulty in curbing tax evasion lies with the way banks exchange information and the numerous tricks that tax evaders use to hide their identity.
“Currently, tax havens only share information if there are well documented suspicions that an individual is trying to evade taxes. But this kind of information is almost impossible to obtain in the first place.”
He says this makes most treaties ineffective.
Between 2006 and 2010, the United States, for example, placed only 894 requests under more than 80 treaties.
The other, bigger issue is that tax evaders use sham corporations, trusts, and holding companies to hide their identity.
Dr Zucman says part of the solution is to enforce automatic exchange of information, as promised by G20 authorities in autumn 2013.
“The recent commitment to implement automatic exchange of information is a very positive development but the fight against tax evasion remains an uphill battle.
"A large fraction of the wealth in tax havens is held through sham corporations, trusts, and the like. The key challenge for the future is to pierce this veil of secrecy.”
In his book, “La richesse cachée des nations” (Le Seuil, Paris, 2013), he calls for the creation of a global financial registry to complement the automatic exchange of bank information.
“Rich countries have had land registries for centuries, but financial wealth remains untraceable. We need a global financial registry to record who owns the world’s equities and bonds, and make tax evasion impossible.”
Dr Gabriel Zucman can be contacted for interview on +1-510-642-2239 or at email@example.com. Please note the 8-hour time difference between California and London. Alternatively, email Candy Gibson, LSE Press Office at firstname.lastname@example.org or 0207 955 7440.
The full paper – “The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown”– is available at http://www.aeaweb.org/articles.php?doi=10.1257/pol.6.1.65
Notes for editors
Dr Gabriel Zucman is an Assistant Professor at the London School of Economics and Political Science and a Visiting Professor at the University of California-Berkeley. His research focuses on the accumulation and distribution of global wealth, from both a public finance and international macro perspective. He is particularly interested in the role of tax havens in the global economy. Recent work includes "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?" (Quarterly Journal of Economics, 2013), and ", 2013), and "Capital is Back: Wealth-Income Ratios in Rich Countries, 1700-2010" (with Thomas Piketty).
Dr Niels Johannesen is an Associate Professor in the Department of Economics at the University of Copenhagen. His research revolves around tax evasion and avoidance, for instance through the use of tax havens and subtle financial strategies, and the implications for the design of tax policies.
30 January 2014