This is one of the outcomes of a data-driven analysis of offshore investment flows published by the University of Amsterdam’s Corpnet research group in a paper titled ‘Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network’.
The report, published last week, drew its conclusions by analysing corporate ownership and financial data for 98 million firms, which together form a large network showing value flowing from subsidiaries to shareholders.
Every year multinationals avoid paying $50-200bn (£38-151bn, €42-169bn) in taxes in the EU using tax havens, the study noted.
In the US, tax evasion by multinational corporations via offshore jurisdictions is estimated to be at least $130bn (£98bn, €110bn) a year.
Offshore jurisdictions: ‘sink’ vs ‘conduit’
The approach taken by the Corpnet team defines Offshore Financial Centers (OFCs) as a jurisdiction (often a country) “that provides corporate and financial services to non-resident companies on a scale that largely exceeds the size of its economy”.
The new method allowed researchers to differentiate between sink-OFCs’ – the typical tax havens that attract and store foreign capital – and ‘conduit-OFCs’.
The latter are countries that allow the transfer of “disproportional amounts” of capital toward the sink-centres without taxation.
Top two facilitators
According to the study, only five big countries act as conduit-OFCs. Together, these developed countries are responsible for channeling 47% of multinational corporate offshore investments to tax havens.
Topping the list of conduit countries are the Netherlands and the United Kingdom with 23% and 14% of offshore investment flows, respectively.
They are followed by Switzerland with 6%, Singapore with 2% and Ireland with 1%.
Strong links with Britain
The study also ranks 24 “sink” jurisdictions attracting financial activities from abroad “through low taxation and lenient regulation”, the report said.
Many of these have been under British sovereignty in the past or are still UK dependencies.
Topping the list of sink-OFCs ordered by their “centrality value” – which is derived by comparing the value of the assets stored in the jurisdictions to their gross domestic products – are the British Virgin Islands, followed by Taiwan, Jersey, Bermuda and the Cayman Islands.
“18 out of 24 sink-OFCs have a current or past dependence to the United Kingdom, which highlights the central role of London in offshore finance,” the researchers wrote.
Isle of Man: hot or not?
Following the research, local newspaper Isle of Man Today wrote that, although the crown dependency might still be branded as a tax haven by its critics, “that’s not the conclusion” of the study, in which the Isle of Man is “noticeable by its absence”.
In the article, the newspaper references some of the detractors of the island’s tax practices.
These include Richard Murphy, a professor in practice in international political economy at City, University of London, who the Isle of Man Today labelled as the crown dependency’s “biggest tax haven critic”.
