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Table of ContentsIntroductionTax evasion and Tax avoidanceIndividual tax evasion Our Solution - Compulsion and ControlTax evasion by multinationals Our Solution - Compulsion and Control

IntroductionThere are few issues in which international actions are more needed than the fight against tax evasion. Today an estimated $7 Trillion or 10% of the world’s GDP are hidden offshore.1 That is more undeclared wealth, in absolute and relative terms, than ever before. Multinationals, such as Apple, Google, McDonalds and many others, the top 1% of wealth-holders and criminal organisations such as the mafia and terrorist organisations: they all use tax havens to avoid paying taxes, to increase their fortunes and to launder their money. But the problem is not only one of unpaid taxes and the hidden criminal activities. Many countries try to compete with each other by lowering their tax rates on corporations and capital, leading to a taxation limbo and the erosion of their respective tax bases in a race to the bottom in which almost everyone, except the multinationals and ultra-wealthy themselves, ends up losing. With strict rules on budget deficits and public debt in place, due to the recent global financial crisis, many countries are forced to cut public spending or increase taxes on labour and consumption, while the wealthiest are able to avoid any con-sequences for themselves. Greater inequalities, unfair competition and further concentration of wealth in the hands of a few are the result.2 It leads to cuts in social spending and health care, and missing public investment into schools and universities. Tax evasion by the few means a loss in public income and a sub-sequent loss of public spending for the many! To gain back our tax sovereignty, to finance health care and education for all our citizens, to make clear that no-one can be above the law and that those who can afford the most should pay the most not the least, to tackle the inequalities between the global north and the global south, we need to tackle the pro-blem of tax evasion!We cannot achieve this on a national nor regional level alone. Opponents of stronger action against tax evasion often say that action can only be done on an international level. So let’s act on an international level! Let’s show that this is an international cause, which people from every region and every country are committed to.It is a problem that will only grow bigger, as the latest leaks and studies proofed. How many more Lux-Le-aks, Panama Papers or Paradise Papers do we need until we make the fight for tax justice a priority? If we do not solve it today, it will haunt us tomorrow. We are the youth. Who if not us? Let’s put light on the shadows, let’s give this issue the attention it deserves!END TAX EVASION NOW!

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1) Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman | NBER Working Paper No. 23805 | September 2017 | JEL No. E21,H26,H872) Piketty, Thomas. 2014. Capital in the 21st Century. Cambridge: Harvard University Press.

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Tax evasion and Tax avoidanceWhile there is often a distinction made between tax evasion and tax avoidance, meaning the illegal tax fraud and the legal tax avoidance through loopholes, bordering on illegality, we see them as two extre-mely interlinked problems. Firstly, they very often go hand in hand: one avoids, where he can avoid and he evades elsewhere. Often the creation of these loopholes is not intended, at least not by the wider public. It is rather a symptom of unbalanced bargaining power between mighty multinationals and countries, in particular developing countries. While tax avoidance is the predominant form for multinationals to not pay taxes, tax evasion is more common among individuals. Everybody has to pay taxes wherever they live, which is mostly defined as spending more than half of the year in the respective country. If one does not declare their taxable income or capital, they commit tax fraud, a criminal offense. Of course there are very many ways in which the 1% can avoid paying taxes too. After all they do not only hold power on an international level. But tax evasion and avoidance on a national level is limited by the power of state authorities, that can investigate and disclose. This is much more diffi-cult on an international level, even if all countries would be willing to cooperate and exchange data about tax evaders. But then again, there are a few countries that specialise in writing laws that make it nearly impossible to trace the beneficial owner of a trust, or they themselves refuse to cooperate. Why do we not see the principal distinction between tax evasion and tax avoidance? Exactly because they are merely the different forms of the relations of power between the 1%, or in fact the 0,1%3 and the rest. Some of it is expressed in laws, even if not publicly known e.g. corporate tax rates and how much corpo-rations actually pay. Some of it is hidden in loopholes, intended at least by the law makers. This is the case, for example, with the inte-rest guideline brought forward by the EU in 2005 establishing automatic exchange of information about foreign taxpayers between countries, but only with respect to natural persons. Within a year the share of letterbox com-panies increased from 50% to 60% of all foreign wealth in Switzerland, while the share of wealth owned by natural foreigners decreased by 10%4. A few clicks were enough, to set up a shell company and to transfer the money. Some of the demands of the very wealthy, however, are beyond what any politician can say or put into laws. Ever-ybody that works must pay taxes from the wage they receive for their work, have to pay for their insurance, have to pay a VAT when they consume what they need to live. But at the same time there are some that do not need to work, that have gained (mostly through inheritance) so much wealth, that it now miraculously becomes more and more in their bank accounts. These incomes are intended to be taxed too, though always at a lower rate as governments are afraid it would evade away when fairly taxed. But with $1 Million or maybe $10 Million, one can buy services from agencies and banks that do not exist for the other 99%. It is so easy today to set up a letterbox company in a jurisdiction that makes it impossible for the national tax authorities to trace their unwilling tax payer. No (in)famous Swiss bank number accounts is needed - we got rid of them to fight money loundering. We are in the 21. Century, tax evasion is truly globalised today. No need to cross borders with suitcases full of cash. Transfers are so difficult to trace in today’s high speed trade, it is like finding a needle in a stack of needles. One just pays his (or much less commonly her) shell company for a service, that is hard to measure, like a new marketing strategy or consulting with the money he would like to hide. That way the money not only ends up safely in his shell company bank account, he has also lowered his taxable profits at home. But there is no need to be smart, when one is rich. One can pay very smart guys, who do nothing except think about how to exploit loopholes and jurisdictions around the globe, to hide identities, launder money and invest it in funds that promise interest rates beyond 8%.5

3) 80% of all wealth held offshore belongs to the 0,1%. 50% to the richest 0,01%. 4) Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens, Chicago: University of Chicago Press.5) Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens, Chicago: University of Chicago Press.

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Many of them are lawyers, who’s secrecy is particularly protected in many countries. A famous recent ex-ample? Mossack Fonseca, the Panamanian law firm that specialised in setting up shell companies for the rich and powerful, human traffickers and drug lords. It is not only the wealthy that use the offshore world to commit tax fraud. All organisations that cannot declare their income, or explain its legality, need to laun-der it. The offshore world, a place where identities disappear, where even the most powerful governments have no insight, is a fantastic place for terrorist organisations, the mafia and all other major criminal orga-nisations. It is also to fight these organisations that we need to tackle tax evasion. It is not the question of legality, the distinction between avoidance and evasion, that should be the focus. Laws are made, laws are changed. But first of all, laws are expressions of relations of power within states. It is these relations of power that we need to change. Not just because of tax evasion, but to guarantee a good life for everybody. Tax evasion has severe impacts on the distribution of wealth, public spending and the composition of our economy. Since the 1970s there has been rising inequality with an ever-growing concentration of wealth at the top 1% and the top 0,1%, which is linked with stagnating real wages at the bottom, deregulations, crisis and austerity. It might not be possible to measure the impact tax evasion in particular has had on these rising inequalities, compared to other factors, such as the deregulation of the financial markets and the declining power of ordinary workers and their unions. But again, it is crucial to not look only at the different superficial expressions, but the underlying cause: an ever-growing imbalance of power between the very wealth of this world and the rest of us.

There is a distinction to be made between tax evasion performed by individuals and tax evasion by mul-tinationals. It is very often the first that are the shareholders of the second, meaning its beneficial owners, and there are many areas where the two forms use similar methods. But the principle structure and our proposed solutions differ substantially for both issues. In the first part we are going to discuss individual tax evasion, how it works, what has been tried in the past and what is needed today to end it.

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Individual tax evasionAs mentioned above, with a few exceptions, everybody has to pay their taxes where they live, meaning where they spend more than half of the year. Countries have different taxation systems with different tax rates, but the principal structure of all taxes is very similar across countries, as most live in capitalistic eco-nomies. There are taxes on labour and on consumption, the VAT, and there are taxes on capital. The most important taxes on capital are the capital gains tax, taxing the income generated through capital, meaning mainly dividends and interests. This income doesn’t play much of a role for the great majority of people. It is, however, the principal source of income of the richest one percent. In some countries, there is a capital tax on the wealth itself, often starting only above a high amount of wealth (e.g. $1 Million). Finally, there is the inheritance tax, paid once by the inheritor, again often above a high amount of wealth, when they inherit. All these taxes concern the very wealth disproportionally and even though these tax rates were lowered around the world over the last 40 years, they would still lead to high transfers of wealth from the very rich into the public budgets.

Ever since these taxes were introduced, they have been undermined by tax evasion. Why would one pay taxes, if he could just decide not too? How does this work? Let us explain it with the help of Mister Notax.Mr. Notax lives in a country, let us say Germany, where he has to pay taxes on all his declared wealth, no matter if kept in a German bank account or a bank account in Hong Kong. He is rich, owning about $10 Million in financial wealth and some real estate. He thinks he has worked hard for his money and that he has paid enough taxes. The German tax authorities, though, have a different opinion. He talks with his banker, or his banker talks with him, about a mutually beneficial deal, resulting in untaxed profits for both. First, they set up a shell company in the Cayman Islands, or some other country that specialises in laws that make it impossible to trace the beneficial owner of a trust or company. This takes only a few minutes, if one knows the right people. This shell company then opens a bank account in another tax haven: most proba-bly Switzerland, an estimated $2.4 Trillion or 30% of all offshore wealth are hidden there, as they are still a key player in global tax evasion, building on a century of great success in facilitating tax evasion.6 Now Mr. Notax needs to get his money into the shell companies bank account in Switzerland. He cannot just trans-

Source: Piketty and Zucman, ‘Capital is back: wealth-income ratios in rich countries 1700-2010’ (2014)

6) Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens, Chicago: University of Chicago Press.

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fer it; the German tax authorities will ask him where the money went and suspect tax fraud. Crossing the borders with bags full of money has its own risks. There are much more elegant ways. He does not need to come up with them himself, there are very bright people that do the thinking for him. He sets up a com-pany in Germany too, and this company pays his shell company in the Cayman Islands for a service that is hard to measure, or they settle a law suit, or… there are many ways in which a payment can be hidden. His money, now safely stored in a Swiss bank account, will enter, as it did, when it was in at his German bank account, the world financial markets, strafing for ever higher rates of return. How can he get his money out again? For small sums, he can just use a credit card, for larger sums he can take a credit at the Swiss branch bank in Germany. Using his Swiss bank account as a liability he can take out what he needs. And what taxes were paid in Germany, Switzerland and the Cayman Islands? None. Germany, where the taxed should have been paid, does not know of the money, the Swiss authorities see that the money belongs to a trust in the Cayman Island, and do not tax them, and the Cayman Island do not tax their trusts: that is one reason why they are located in the Cayman Islands in the first place. There are different estimates for the size of the offshore economy and the amount of public income that is lost. These estimates go up to $21 Trillion suggested by the Tax Justice Network7. We believe that the con-servative estimates by Gabriel Zucman are most realistic, with 10% of the world’s GDP, or 8% of the world’s private wealth, corresponding to $8 Trillion (2013), hidden offshore.8 The amount of wealth that is hidden offshore differs substantially between countries. Though estimates do not exist for all countries, it can be assumed that tax evasion hits developing countries hardest. This is because of the scarcity of capital in their economies in the first place, a small tax base and weak state infrastructure with large informal sectors and often high inequality, resulting in the fact that most of the countries’ wealth is kept by the richest 0,1% or 0,01%, with easy excess to the offshore world. Zucman estimates that 30% of financial wealth in Africa is held offshore, compared to 10% in Europe.9 There is more wealth from developing countries hidden offshore than all development aid to they receive combined. The amount is also larger than all public debt of developing countries combined.10

7) Henry, James S. 2012. “The Price of Offshore Revisited: New Estimates for Missing Global Private Wealth, Income, Inequality, and Lost Taxes”, Tax Justice Network working paper. 8) Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens, Chicago: University of Chicago Press. And Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality Annette Alstadsæter, Niels Johannesen, and Gabriel ZucmanNBER Working Paper No. 23805 | September 2017 | JEL No. E21,H26,H879) Zucman, Gabriel, ‘Taxing across borders: tracking personal wealth and corporate profits, Journal of Economic Perspectives, 28(4), 201410) Henry, James S. 2012. “The Price of Offshore Revisited: New Estimates for Missing Global Private Wealth, Income, Inequality, and Lost Taxes”, Tax Justice Network working paper.

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There have been numerous attempts by countries and international institutions to tackle the problem of tax evasion, as it has been understood as a growing problem. Tax evasion is a dynamic process that has adapted to new laws and regulations, which is one explanation for the failure of some policies and agree-ments that were created to end tax evasion. Most proposals, however, had structural deficits that made it very unlikely that they would be able to change something substantially. They either lacked compulsion or control or both. A country that specialises in facilitating tax evasion therefore also has a part of its economy, even if it is just a small share of its total economy (e.g. Switzerland approximately 3% of its GDP) that is very interested in continuing their business model, without foreign interference. The tax haven itself never benefits as much from the evasion as the country that loses its tax revenues is hurt by it, because first and foremost it’s the tax evaders and the banks and agencies that benefit. It is however very unlikely that a country would give up this business model, if there is nothing they can gain from signing or lose from refusing. All previous attempts that were made, relying on the good will or honesty of tax havens, have failed.

Our Solutions - Compulsion and ControlThat is why we demand that all countries must share all information on wealth held by foreigners in their country. To convince them there are two principle strategies. For the small tax havens, a 100% withholding tax of all payments (e.g. interests, dividends,…) to uncoope-rative countries. This is already being applied by countries like the US in their FACTA programme. It is not necessary for all countries to enforce such a withholding tax. It is enough if the big economies, the USA and EU, would do it. No tax haven can survive for long, if it can only invest making zero profits (resulting in not being able to invest) at the financial markets that cover approximately 50% of the world’s GDP.

Source: Alstadsæter, Johannesen & Zucman, ‘Who owns the wealth in tax havens’ (2017)

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However, six of the leading tax havens - Switzerland, Luxemburg, Hong Kong, Singapore, the Bahamas and the Cayman Islands - are financial centres of great importance. A 100% withholding tax in these cases would have enormous implications at the financial markets. That is why a different approach should be taken. They are not only financial centres, their economies also depend highly on trade. Exports make up 50% of Switzerland’s GDP and close to 200% of the GDP of Hong Kong, Luxemburg and Singapore. For these countries, punitive duties on their exports or in a second step on their imports equivalent to the estimated costs of tax evasion should be a decisive argument. Again, it is not necessary that all countries participate in this action. These countries facilitate tax evasion in a way that often follows geographic patterns, and so does their trade. They might be willing to enter a trade war with one country, they most probably will not with an alliance of their principal trading partners. Necessary for this approach are good estimates of the hidden wealth in each tax haven, where it should have been taxed and how high the taxes in the respective country are. Gabriel Zucman provides a robust estimate for these figures, using informa-tion from official reports of central banks and abnormalities in global balance sheets, and checking them with information, that was leaked such as the Lux-Leaks or the Panama Papers.Luxemburg is a special tax haven even within this group, as it is part of the European Union and therefore protected from punitive duties through EU contracts that can only be changed with a unanimous vote of all member states. Different forms of pressure most therefor be applied to convince the government of Luxemburg to participate. The best-case scenario is that these threats are enough and none of them need to be applied. There should however be no threat that would not be kept. These threats should be accompanied by generous loans to invest in the real economy, helping them to fill the gap tax evasion left in their country, if they decide to participate. Even if all countries would agree to participate, it is useless if there is no way in controlling the information and ensuring that it is complete. There are countless ways in which tax havens, their banks and agencies can argue that they do not hide any foreign wealth or that they cannot trace the beneficial owner. As long as there is no control, it is very unlikely that substantial advances can be made in the fight against tax eva-sion. That is why we call for a global financial register, in which all wealth and the natural person owning it, are listed. Such registers already exist on a national level (e.g. Sweden has such a register). All shares and bonds are currently registered centrally by institutions like Clearstream and Euroclear. These registers need to be merged and extended to all wealth that is not registered at the moment. Secondly, all benefi-cial owners, meaning the natural persons owning the assets, need to be identified. The register needs to be checked with all other sources on wealth. In particular, the abnormalities in global balance sheets, that are currently used to estimate the shadow economy, would need to disappear. Such a register could be created and coordinated by an institution like the IMF, supported in the beginning by investment from all participating countries. Once created, the IMF keeps an annual capital tax, higher than the highest capital tax in the world, for now 2%, on all wealth, until it is declared. Once the beneficial owner comes out and the national tax authorities gave their ok, the capital tax would be returned to the taxpayer. In this way, the whole shadow economy, with all its brilliantly complex constructions of laws and loopholes, shell companies and trusts, becomes useless. There will of course be those that cannot come forward, as tax evasion is only the end of their criminal activities. These funds of the Mafia, terrorist organisations and all other criminals that hid with the rich and powerful in the shadows of the offshore economy, can then be distributed on an international level and used to combat these criminal activities and to invest in good education and healthcare for all, in fighting climate change and the root causes of migration.

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Our solutions to end individual tax evasion are difficult to achieve, first people will say that they are impos-sible, then there will be resistance. Maybe there are solutions that seem more feasible. We should not aim for what seems easy, but for what is realistic. We can only end tax evasion internationally, with compulsion and control!

Tax evasion by multinationalsTax evasion by multinationals works differently compared to individual tax evasion. That does not mean that they do not share some common characteristics. In the end, it is very often the wealthy individuals that commit tax fraud that are also the shareholders of these tax evading multinationals. Similar to taxes desi-gned for individuals, there are taxes that are made for companies. The most important taxes are corporate taxes, taxes that are paid on the profits a company makes. It usually is a flat tax rate and does not change with increasing profits. The second is the Value added tax or VAT, that is paid at every purchase. These taxes are in principle the same for all companies doing business in a specific country, if they are small and medium sized companies or multinationals. In order, not to tax companies multiple times if they operate across borders, countries write contracts with each other agreeing on no double taxation, resulting very often in no taxation at all. How much public income is lost, due to the legal and illegal use of loopholes and the offshore economy? Again, there are only estimates. It is important to make a distinction between estimates that only include illegal practices and those that also take tax avoidance into account. Richard Murphy, in an often cited study, estimates tax avoidance by looking at expected and actually paid tax rates by the biggest 700 companies in the EU. He assumes the difference between those tax rates to be the taxes that are lost each year due to tax avoidance by multinationals. For 2012, he finds the number of $150 Billion per year of unpaid taxes in the EU.11 Unfortunately the quality of data from developing countries makes estimates very difficult. However, it seems to have more damaging effect on developing countries than on industrialised countries, as their bargaining power towards these multinationals is even lower. Cobham and Jansky estimate that tax avoidance leads to a global revenue loss of $500 billion, with a strongly disproportionate impact on the revenues of developing countries.12

11) Closing the European Tax Gap by Richard Murphy FCA12) Alex Cobham and Petr Jansky, Global distribution of revenue loss from tax avoidance, UNU-WIDER Working Paper 2017/55

Revenue Losses from multinational tax avoidance per region. Source: Cobham and Jansky

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But it is not only a question of the taxes that are not paid year by year. Many countries have started lowe-ring their corporate tax rates to attract multinationals, in a constant race to the bottom, decreasing their tax base. They trap themselves in taxation game which no one can win, but where everybody loses. Less visible, but maybe even more harmful, are the so called goodies multinationals ask for when they think of moving their production somewhere: special tax cuts and fiscal benefits fitting them like their handmade suits. It is these loopholes that are put into legislations that result in the fact that Apple in 2014 did not pay 12,5% on their profits in Europe that were surprisingly all made in Ireland, but only 0,005%.To better understand how tax evasion of multinationals works let us explain it with a fantasy company Elppa. Elppa produces computers in a country where production is very cheap, to simplify it, let us say all steps of production of the computer are happening in one country, China, at the total costs of $100 dol-lars. The computer is than sold for $100 to a branch firm of Elppa located in a country that is known for its generous legislations towards corporations. Some of them, like Luxembourg, let the multinationals even write their own legislations. The branch firm in Luxembourg provides some kind of service to Elppa and its computers, something like consulting or a new marketing strategy, something hard to measure. It then sells the computer to a third branch firm of Elppa, in a country where people buy lots of computers, the US, for $1000. In the United States the computers are sold at the price of $1000. Who made profits where and how are they taxed? The profits of the branch firm of Elppa in China are zero, as the costs equal the revenue. Since it is the profits that are taxed, there are no taxes paid in China. In the United States the profits of the branch firm are also zero, $1000 costs and $1000 of revenue: no corpora-te tax in the USA. And in Luxemburg, the computer is bought for $100 and sold for $1000, equivalent to $900 of profits. But there are no taxes on these profits in Luxembourg. All in all, Elppa made a total profit of $900, but paid zero taxes. This trick is called profit shifting. Profit shifting is the principle mechanism which multinationals use to avoid paying taxes. The case above might be a simplified example, but the outcome is very close to reality. Apple paid in 2014 0,005% taxes on their profits made in Europe. The people developing the strategies through loopholes and jurisdictions have much more time and resources behind them than the tax authorities and politicians that try to chase them. But states have different powers. They can change the rules of the game.

Our solutions for tax evasion of multinationalsCountry by country reporting Currently multinationals are only obliged to provide information on their revenue, costs and profits at a regional level. This enables them to argue that all their profits in a region are made in one country only, surprisingly often it is a small country with almost no tax on corporate profits. It is countries that tax, not re-gions. That is why we demand extensive and transparent country by country reporting by multinationals. Every corporation must provide complete information on their costs, revenue and profits for each country where they are present. Taxing global profits The regulations we have in place today, that concern the taxation of multinationals, were written in a time when the global economy looked very different from how it looks today. Large shares of global trade are happening within multinationals, between their branch firms. It is easy for them to shift their profits in ways that they do not pay taxes, as long as the profits of each branch firm are considered separately. That is why we call for new regulations on the taxation of corporations that ends this practice of treating different branches of the same company as if they are separate entities: taxing their global profits according to a

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formula including labour and revenue, while limiting immaterial goods with a maximal 5% share of the global profits. Their global profits are then divided between all countries, where production happens and revenue is made. International minimum corporate tax Tax competition had devastating consequences for public budgets, in particular in developing countries. In this taxation limbo, everybody loses, except the multinational and its shareholders. That is why we de-mand an international minimum corporate tax of 25%. Everybody can go higher, but no one can go lo-wer. Corporate taxation has to become transparent again, countries must close their loopholes. Like with tax havens that specialise in individual tax evasion, countries that facilitate tax evasion by multinationals accrue short-term benefits from the practice. These benefits, though, are far outweighed by the costs for other countries, and they come at the cost of permanent vulnerability to other countries making even more appealing offers to corporations than they do. Their national economic strategies become depen-dent on the Faustian bargain of helping corporations to rig the game against everyone else, rather than more enduring or reliable qualities. Like with tax havens for individuals, if these countries do not initially recognise the destructiveness and instability of their positions, actions can be taken by other countries to encourage them to comply with these changes. Punitive trade duties can again be pursued. For countries within the EU, such as Ireland or Luxembourg, agreements to new corporate tax rules can be made a re-quirement for their continued enjoyment of the institutional advantages they gain from membership of the EU – this could include access to various forms of EU funding, EU procedures that disproportionately benefit small countries, the location of the European Stability Mechanism in the case of Luxembourg or support in adapting to Brexit in the case of Ireland.These measures might seem difficult at first, but it is our profound understanding that the principle divide does not run between nations but between the ultra-wealthy and the rest of us in every country, and that everybody deserves a good life provided for by everybody paying their fair share. International solidarity is our greatest value and our strongest force!