Britain is the world’s second largest conduit for multinational companies avoiding tax on profits, according to new research.
Although the British government has taken a leading stand in the fight to tackle corporate tax avoidance, data analysis by researchers at Amsterdam University in The Netherlands shows The City of London is a favoured stop-over for money heading for other destinations.
The study identified 47% of corporate offshore investment passes through only five countries.
The Netherlands tops the list, followed by Britain, Switzerland, Singapore and Ireland.
The onward tax havens receiving the money are headed by the British Virgin Islands, Taiwan, Bermuda and the Cayman Islands.
Money moves on a huge scale
Researchers developed a data model to show how much corporate money headed into tax havens in comparison to the size of the local economy.
Based on the analysis, money flowing to the BVI exceeds the expected level by more than 5,000 times.
The team defines an offshore financial centre as a country that provides corporate and financial services to non-residents on a scale that is larger than expected from the local economy.
Many so-called tax havens are former British colonies, territories and dependencies that were left to fend for themselves as the former empire dissolved in the 1940s and 1950s.
Realising that the local economies could not thrive, successive British governments encouraged them to develop their banking and financial sectors to bring in foreign earnings to support their communities.
Most tax havens have UK links
Many contrived innovative and secretive banking systems charging little or no tax to wealthy individuals or companies sheltering their profits.
“‘Offshore financial centres are often portrayed as small, exotic, far away islands that are difficult if not impossible to regulate. We show that many are in fact highly developed countries,” says the report.
“Our research shows 18 out of 24 offshore financial centres have a current or past dependence to the UK, which highlights the central role of London in offshore finance.”
The authors also suggest that cutting off the supply of money from conduit financial centres, such as The City, would be a more effective way of controlling offshore tax havens than direct action against them.
