The Tax Justice Network has published its Corporate Tax Haven Index for 2021, showing which countries are most complicit in helping multinational corporations underpay corporate income tax.
The index is a comprehensive assessment of corporate tax laws in 70 jurisdictions around the world – including South Africa – and how easy or difficult it is for companies to abuse gaps or loopholes.
According to the TJN, countries are ranked by their Corporate Tax Haven Index value, which is calculated by measuring how much scope for corporate tax abuse the jurisdiction’s tax and financial systems allow – assessed against 20 indicators – as well as measuring how much financial activity from multinational corporations the jurisdiction hosts.
For example, a territory like the Bahamas has a high tax haven score (100 – the top of the scale), but only accounts for 0.31% of global foreign investment flows – so it ranks 12th in the list of biggest tax havens.
The Netherlands, meanwhile, has a lower tax haven score (80), but has 11% of all foreign investment flows, placing it higher, at fourth.
South Africa is not known as a tax haven for corporates, and has a score to reflect that – just under 50. However, with a score at the midway point on the scale, the TJN highlights that the country still has many tax gaps and loopholes that are open to potential abuse.
Some gaps highlighted in the report include things like a lack of transparency in some types of contracts (like mining contracts), tax affairs having limited public oversight, and looser rules on controlled foreign companies.
South Africa’s tax rules involving foreign service companies – or digital companies – operating within its borders have also drawn controversy in recent times, where the TJN noted these are dealt with in ‘arms-length’ terms. However, South Africa does this to remain globally competitive, it said.
According to the group, South Africa is responsible for 0.45% of the world’s corporate tax abuse risk, ranking 45th on the overall index.
With inward foreign direct investment of $164.5 billion, and outward foreign direct investment of $255 billion, the total of $419.4 billion represents only 0.44% of the global picture.
Taking the TJN’s methodology into account, the British Virgin Islands emerged as the biggest tax haven in the world.
The islands do not impose any corporate income tax, which makes most of the indicators assessed by the TJN obsolete. No tax, means no loopholes – or rather, no need for them. The jurisdiction also accounts for 2.3% of all foreign direct investment ($2.2 trillion), making it the go-to for corporates looking to avoid the taxman.
These are the 15 biggest tax havens in the world:
| # | Jurisdiction | Tax Haven Score | Global Scale Weight | Combined FDI ($bn) |
|---|---|---|---|---|
| 1 | British Virgin Islands | 100 | 2.3% | $2 200 |
| 2 | Cayman Islands | 100 | 1.9% | $1 768 |
| 3 | Bermuda | 100 | 1.6% | $855 |
| 4 | Netherlands | 80 | 11.0% | $10 505 |
| 5 | Switzerland | 89 | 3.4% | $3 261 |
| 6 | Luxembourg | 74 | 9.0% | $8 529 |
| 7 | Hong Kong | 100 | 5.5% | $5 254 |
| 8 | Jersey | 78 | 0.51% | $485 |
| 9 | Singapore | 85 | 2.3% | $2 143 |
| 10 | United Arab Emirates | 98 | 0.54% | $508 |
| 11 | Ireland | 77 | 3.2% | $3 060 |
| 12 | Bahamans | 100 | 0.31% | $291 |
| 13 | United Kingdom | 69 | 7.3% | $6 867 |
| 14 | Cyprus | 85 | 1.1% | $1 034 |
| 15 | Mauritius | 81 | 0.66% | $626 |
| 45 | South Africa | 49 | 0.44% | $419 |
