Tax Games. The Race to the Bottom.
Europe’s role in supporting unjust global tax system.

Corporate tax income is needed more than ever…

The world’s governments have committed to ambitious Sustainable Development Goals and a new global climate agreement, but the funding necessary to reach these goals is lacking. This gap is felt most strongly in developing countries, where funding sources are in short supply and the development challenges are most severe. In this context, corporate tax income is an absolutely indispensable source of government revenue.

…but governments are racing to the bottom

Our analysis of developments in the EU and Norway shows that 12 governments have either just cut their corporate tax rate, or plan to do so over the next few years.

Despite promises to make multinational corporations pay their fair share, the world’s governments have become locked in a costly and destructive ‘race to the bottom’. If the current trend continues, the global average corporate tax rate will hit zero per cent in 2052.

While corporations pay less, consumers around the world have to pay more, in order to fill the gap from missing corporate tax income. Since consumer taxes impact disproportionally on the poorest, this trend risks exacerbating inequality rather than reducing it.

 

Loopholes, exclusion and secrecy

Corporate tax avoidance is still widespread. The best estimates say it costs societies around US$500 billion in lost revenue every year – mainly because governments offer secrecy, tax incentives and loopholes to make it possible. The EU is focused on blacklisting other countries as ‘tax havens’, but still has to put its own house in order.

Meanwhile developing countries, which suffer most from corporate tax avoidance, are still unable to participate equally in deciding international tax standards. The OECD excluded more than 100 developing countries when the most recent standards were negotiated.

Citizens are also kept in the dark, leaving whistleblowers and the media to expose corporate tax avoidance. Following a string of tax scandals, the EU is now discussing whether to allow citizens to see where multinational corporations do business, and how much they pay in taxes in each country where they operate. However, there is still significant opposition at country, Commission and Parliament level to the introduction of full public country by country reporting.

On the upside, substantial progress is being made to end anonymous shell-companies, which can be used to hide money and evade taxation. The EU has now committed to introducing public company registers showing the real – beneficial – owners in all countries across the union.