Luxembourg, still active member of the “axis of tax evasion”

The “tax avoidance axis”, made up of Luxembourg, the Netherlands, Switzerland as well as the United Kingdom and its dependent territories, is responsible for 36% of all tax losses suffered by the countries of the around the world, according to the latest annual report “Tax Justice: State of Play 2024” published Tuesday, November 19 by the Tax Justice Network association. Tax losses that amount to a cost of more than $177 billion in lost taxes each year.

In fact, despite the desire for reform brandished by the OECD through its BEPS action plan, tax evasion is doing very well. Global revenue losses due to cross-border tax abuses amount to $492 billion per year, according to the NGO report, with even a “trend to increase”.

This loss is the result of two practices: a very large part is due to the avoidance of corporate tax practiced by multinationals, which represents $348 billion in tax losses per year. The rest – $145 billion per year – is due to offshore tax evasion by wealthy individuals and their undeclared offshore assets.

1.42 trillion dollars transferred to tax havens by multinationals

Tax evasion by multinationals includes different practices, according to the NGO. On the one hand, criminal tax evasion and illegal tax avoidance. On the other hand, certain avoidances that are technically legal given the weaknesses of international tax rules, but which nevertheless “contribute to the gap between the place of the real economic activity of companies and the place where their profits are declared for tax purposes”, explains Tax Justice Network.

Through these practices, multinationals transfer on average $1.42 trillion in profits to tax havens, according to the NGO’s calculations, ultimately resulting in a loss of $348 billion in direct tax revenue per year. However, three quarters of this sum are lost in tax havens whose effective tax rate is less than 10%, underline the authors of the report, including Luxembourg, but also the United Kingdom, the Cayman Islands, Singapore, the Netherlands, Hong Kong, Bermuda, Puerto Rico and Jersey.

The “axis of tax evasion”, a privileged destination

More precisely, the “axis of tax avoidance”, which therefore includes Luxembourg, is responsible for 33% of corporate tax losses (23% being caused by the United Kingdom and its dependent territories: islands British Virgins, Cayman Islands, Bermuda, Jersey, Guernsey…). In fact, $469 billion in profits are shifted by multinationals each year to this “axis,” costing the world $115 billion in taxes lost to corporate tax abuse, according to the report. This “axis” would also be responsible for 46% of the risks of corporate tax abuse worldwide.

Luxembourg alone contributes 2.6% of global tax losses inflicted on third parties due to corporate tax abuse, according to figures from the report. A considerable proportion considering the size of the country. In Europe, only Ireland (9.9%), Switzerland (5.4%) and Denmark (3.3%) are doing worse.

Luxembourg ranked 10th in the Tax Haven Index

In a country by country comparison, Luxembourg ranks 10th among the states in the world “which most help multinationals not to pay corporate tax”, according to the “Corporate Tax Haven Index” of 2024 developed by Tax Justice Network. In Europe, Luxembourg comes only after Switzerland (4th), the Netherlands (7th) and Ireland (9th). The ranking is generally dominated by the British dependencies (the British Virgin Islands come first, followed by the Cayman Islands and Bermuda).

“For every dollar collected by one of these tax havens, the world’s governments – and therefore their citizens – lose more than 5 dollars,” comment the authors of the report. “Continued toleration of this corporate tax abuse is grossly ineffective on a global scale and results in a significant transfer of wealth from people and workers around the world to corporate giants and their shareholders and wealthiest households in the world.

5.6% of tax losses due to offshore finance linked to Luxembourg

If the landscape of the second cause of tax losses, that of offshore tax abuse, in other words tax evasion abroad by wealthy individuals, is for its part “more promising over time”, the “end of banking secrecy” is still a long way off, the report also notes. From general to specific, OECD countries and their dependencies are responsible for 93.5% of the 145 billion US dollars that the world loses each year due to tax evasion by offshore fortunes, notes first of all NGO.

But “the worst students” are once again Luxembourg and the other countries of the “axis of tax evasion”, responsible for 43% of the losses, which costs the world 62.7 billion dollars in lost taxes. . Luxembourg alone accounts for 5.6% of total losses, second in Europe behind the United Kingdom (14.6%), but ahead of Ireland (4.5%), the Netherlands (3%). or Switzerland (1.3%).

Hope for a UN tax convention

If the picture drawn up by the NGO seems gloomy, hope remains, she notes, in particular because a “crucial measure is on the verge of success”: a tax convention negotiated at the United Nations level, which could be adopted by 2027. “The world is on the cusp of a fundamental reform of international tax governance,” warns Tax Justice Network.

This project, initiated by the group of African states, has since its launch aroused hostility from OECD countries. They explained that they did not want to short-circuit the work already underway at the OECD level. But many actors pointed out that the institution was poorly placed for this task, the member countries of the OECD, as well as their territorial dependencies, being responsible for more than three quarters of the tax losses that the world suffers each year.

The EU and Luxembourg change their position

Among these OECD countries, the EU, including Luxembourg, initially opposed this initiative with a vote of rejection in 2023, before changing its position by abstaining in August 2024, and finally in now calling on all UN member states to participate fully and openly in the upcoming negotiations.

Eight countries around the world are still directly opposed to this initiative: the United States, the United Kingdom, Australia, Canada, Israel, Japan, New Zealand and South Korea. These eight countries and their dependencies are home to only 8% of the world’s population, but are collectively responsible for 34% of global tax losses due to corporate tax abuse, notes the NGO Tax Justice Network.