Tax havens harm not just the exchequer, but also the environment

TV Jayan New Delhi | Updated on August 15, 2018 Published on August 15, 2018

VICTOR GALAZ, Deputy Director, Stockholm Resilience Centre, Stockholm University

Illegal fishing, destructive land use among consequences, says study

While the role of tax havens across the world in letting MNCs and wealthy individuals evade taxes and regulations is well documented, little is known about their hand in supporting economic activities that have serious ecological consequences.

A new study, published in the journal Nature Ecology & Evolution on Monday, for the first time tried to assess how the capital flowing through these financial secrecy jurisdictions aid activities such as overfishing in seas and destructive land use change in the Amazon rainforests.

The team, comprising researchers from Sweden and the Netherlands and led by Victor Galaz, Deputy Director of the Stockholm Resilience Centre in Stockholm University, sifted through data from leaked classified files from law firms Appleby in 2017 (Paradise Papers) and Mossack Fonseca in 2016 (Panama Papers) and other publicly available documents.

The papers brought to light the intricate ways in which these tax havens, steeped in secrecy and opacity, cause substantial losses of global tax revenues to the tune of $200 billion.

The UN has identified illegal, unreported and unregulated (IUU) fishing as among the greatest threats to fish stocks and marine ecosystems.

According to the study, about 70 per cent of the known vessels implicated in IUU fishing have been flagged under a tax haven jurisdiction.

The maximum number of vessels found to carry out IUU fishing are registered in tax havens such as Belize and Panama.

According to estimates by independent studies, 11-26 million tonnes of illegal or unreported catches are fished worldwide every year.

The Amazon rainforests, an iconic ecosystem that critically regulates global climate, has been suffering extensive deforestation. A close scrutiny of data by the scientists showed that 68 per cent of all investigated foreign capital between October 2000 and August 2011 funnelled to nine big companies in the soyabean and beef sectors in Brazilian Amazon was transferred through one or several tax havens.

Prominent among these were the Cayman Islands, the Bahamas and the Netherlands Antilles.

“There is a need to understand to what extent the use of tax havens is linked to environmental degradation, through both case studies and systematic assessments. This is an issue that requires global concerted action, with support from countries in both the Global North and Global South,” Galaz told BusinessLine in an email interview.

Addressing these issues is a win-win, he added. Not only would it increase tax revenues but also curb environmental degradation.

Reporting by MNCs

Jan Fichtner, a postdoc studying international political economy and global finance at the University of Amsterdam, said it is vital to force MNCs to publish country-by-country reports in order to make their activities in tax havens transparent.

“Despite some recent initiatives (such as the BEPS initiative by the OECD), the role of tax havens definitely does not seem to go down,” said Fichtner, a co-author of the study.

Published on August 15, 2018
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