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People have been trying to dodge paying taxes since time immemorial, but globalization has turned tax avoidance and evasion, as well as money laundering, into a lucrative business model. Over the past few decades, offshore tax havens such as the Cayman Islands, Bermuda, Cyprus, and Ireland have enabled corporations and wealthy individuals to conceal profits and private wealth on an unprecedented scale.
While quantifying how much wealth is stored in offshore tax havens is notoriously difficult, a 2018 paper estimated that the equivalent of 10% of the world’s GDP is held in low-tax jurisdictions. In recent years, high-profile leaks like the Panama Papers, the Paradise Papers, and the Pandora Papers have shed light on this shadow financial system and on the tax-avoidance schemes used by the world’s business and political elites. Each revelation triggers a public outcry and demands for reform. Even Pope Francis declared that tax evasion is a sin.
By highlighting the crucial role that tax havens play in propping up autocratic regimes, Russia’s invasion of Ukraine has underscored the urgent need to rein in offshore finance. But it has also illustrated how little progress had been made. In 2013, for example, the OECD launched its Base Erosion and Profit Shifting initiative, a package of corporate tax reforms meant to ensure that multinationals pay their fair share. But while 138 countries have endorsed BEPS, its achievements have been modest so far. As a 2020 paper notes, the framework failed to introduce proper accounting standards, leaving it ill-equipped to tackle some of the more egregious forms of corporate tax avoidance and evasion.