Tax evasion is a widespread phenomenon that scourges global economies by crippling the markets and taking away billions of dollars of potential tax income. In spite of its economic and legal consequences, individuals and corporations from around the world seek opportunities to fraudulently reduce their tax burden. This paper aims to explore the complex mechanics of global tax evasion and examine the challenges international organizations face in targeting offenders.
To begin, it is important for readers to understand what defines tax evasion. Generally, it is the deliberate avoidance of taxes by any means available, whether legal or illegal. Tax evasion is not to be confused with legal tax avoidance, where legitimate means are used to reduce one’s tax burden. Instead, evasion involves hiding facts from the tax authorities and can include engaging in sham transactions, structured deals, counterfeit documents and other forms of fraud.
Tax evasion is often facilitated by offshore jurisdictions and tax havens. These places legalize ‘tax havens’ which are countries with low taxation or no tax. They are usually small countries, both developed or developing, with political and socio-economic stability, organized offshore banking system, strong financial service sector and convenient laws for conducting business. The most common of such nations include Switzerland, the United States, the United Kingdom, Ireland, and the Cayman Islands.
From the perspective of the international community, tax evasion raises several moral, political and economic issues. Firstly, it is a significant ethical dilemma since tax evasion morally contradicts the ideals of a just and fair society. Political approaches to combatting tax evasion border on the intrusive as they can create unwanted economic sanctions and/or restrict rights. Finally, the economic cost of tax evasion is immense, both on an individual level and on a national level. For instance, in 2018, the European Union lost an estimated €50 billion due to corporate tax fraud and avoidance.
In stopping global tax evasion, various organizations have attempted to collaborate and create partnerships in order to establish efficiency in the process. These organizations, such as the Organization for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF), require/must create operating agreements and/or effective mechanisms that enforce the law. This is further complicated by the lack of financial transparency and the unique rules and regulations of each nation, which hinder global coordination.
Despite these challenges, global initiatives are still being undertaken. The OECD’s Anti-Tax Evasion Action Plan encourages countries to exchange information of their citizens through automatic exchange mechanisms and to “engage in an increasingly large and wide-reaching range of measures to combat those behaviours”. Additionally, the first major anti-tax evasion initiative of its kind, the European Union’s Common Reporting Standard, seeks to foster international collaboration and ensure the frequency and accuracy of tax payments and improvements in the level of fiscal compliance.
In conclusion, global tax evasion is a complex problem and one that requires concerted international action. An understanding of the mechanics driving this problem is essential to formulating comprehensive solutions. While there are challenges, recent evidence suggests that steps are being taken to counteract tax evasion through international organizations and to ensure fairness and transparency.
