Tax evasion

Tax evasion is clearly an issue that needs to be taken care of as a transnational cooperative movement, however the people who benefit most from it are unfortunately the ones that can actually take most part in the solution. As well as widening the wealth gap between the rich and the poor, tax evasion also indirectly helps finance illicit organizations and encourages mendacious or dicey activity.

Since the global revolution of financial transparency in 2007, fiscal measures are thought to be increasingly austere. Switzerland was in the center of the scandals that lead to FATCA, America’s Foreign Account Tax Compliance Act. This law enforces solid penalties on foreign financial firms that hide their American clients and camouflage financial assets. Switzerland’s important and reputable banking system was unfortunately built on foremost bank secrecy. Although, since America started advocating automatic declarations, other OCDE countries began as well, which put tons of pressure on banks to reveal data on their customers. This situation led to the CRS, Common Reporting Standard, an initiative supported by 96 countries, including Switzerland, compelling multinationals to reveal further financial information and creating a free movement of that data between those different countries.

Europe evidently has the highest tax rates in the world, and therefore also has the largest black market. The European averaged tax rate is of 39%, when equated to GDP, compared to the world average of 28%, and lowest of 17% in Africa. The world’s ten largest economies have lost out on $100 billion each on collection due to evasion towards havens, such as the Cayman Islands or Luxembourg. This issue is very common in southern Europe, especially Italy and Greece, where high tax rates are pooled with somewhat ineffective law enforcement and modest public services. More than 25% of tax income in both countries is lost due to weighty shadow economy that is socially normalized. Self-employment and small businesses are more predominant than in other European countries, activities often out of fiscal authorities’ reach. Given that most of them are indeed avoiding some taxes; it is deemed socially acceptable to do so by each and all.

Julien David Mousseau

*FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy