Despite the current international hunt for everything that resembles international tax planning, about eight per cent of global assets is safely located in various tax havens (nowadays rebranded as “financial service centres”). So, exactly how efficient is the fight against entrepreneurs and multinationals intent on tax-minimisation?

According to a recent study “The Hidden Wealth of Nations – an examination of tax havens” by Gabriel Zucman, an economist at the London School of Economics, published in the Journal of Economic Perspectives, more than seven trillion dollars is nowadays invested in various low tax countries. This money predominantly comes from European investors. To be precise, USD 2.6 trillion, comes from Europe followed by USD 1.3 trillion from the USA, USD 1.2 trillion from Asia and USD 700 billion from the Gulf states.

Zucman’s calculations show that the countries of origin of the assets face a total “loss” of USD 190 billion on tax revenues annually. And this calculation does not even include real estate. (The “loss” is of course calculated on the basis of the misguided assumption that if the governments would have been successful in extracting the full tax that total profits would have been the same. This is similar to assuming that if Starbucks would double the price of coffee they would double the profits. It reveals a fundamental misunderstanding of the price mechanism).

Another interesting finding of Zucman reveals that US groups increasingly book their their profits abroad, with Singapore and Luxembourg enjoying popularity in particular. In 2013, 55 percent of profits of subsidiaries of US companies was booked in tax havens. 30 years ago (when nobody really cared about fighting the tax havens at all) this figure was as low as 20 percent.

In the light of the recently leaked tax advice and tax rulings in Luxembourg, one wonders how successful are the world’s governments and international organisations like the OECD in combating the legal right of each entrepreneur to arrange their tax matters in the most efficient way?
Apparently not as much as they pretend they are.
 
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