Rich dodge US$156b tax on hidden assets, says Oxfam

The world's rich have hidden at least US$18.5 trillion in tax havens around the globe, causing the loss of more than US$156 billion in tax revenue, according to Oxfam.

The international aid agency says the unpaid tax is twice the sum required for every person in the world to live above the extreme poverty threshold of US$1.25 a day.

Oxfam has found that two-thirds of this global offshore wealth, or more than US$12 trillion, are hidden in European tax havens such as Luxembourg, while a third of offshore wealth, or more than US$6 trillion, is sitting in tax havens linked to Britain, such as the British Virgin Islands and the Cayman Islands, undeclared and untaxed.

European leaders yesterday targeted a year-end deadline to do away with banking secrecy, hoping to recoup €1 trillion (HK$10 trillion) a year in lost tax each year.

In 2010, Luxembourg ranked fourth as the target of outward foreign direct investment from mainland China and Hong Kong, receiving US$10.4 billion, according to Global Financial Integrity, which tracks fund flows.

Luxembourg is the preferred European location for Chinese investments into Russia, a KPMG report said. The British Virgin Islands account for most of Hong Kong's offshore business, much of which involve mainlanders.

Kevin Roussel, Oxfam's head of essential services campaign, said: "It's scandalous so much money is allowed to sit untaxed. There's enough potential tax to be had on hidden private money to end extreme world poverty twice over."

The Credit Suisse Global Wealth Databook estimated that the world's net financial wealth totalled US$94.7 trillion last year, excluding property.

Oxfam estimates 19.5 per cent of global deposits are held by foreigners in tax havens, giving a figure of US$18.5 trillion held offshore. Oxfam then used the tax rates of various countries to reach its figure of US$156 billion of lost tax revenue.

The European Union's loss of revenue from tax fraud and evasion was €1 trillion, said the president of the European Commission, Jose Manuel Durao Barroso, in Brussels on Tuesday.

"The €1 trillion is nearly double the 2012 annual budget deficit of all the EU member states. It is more than the total spent on health across the EU in 2008. It is more than six times the annual budget of the EU. That is a huge amount of money to simply let through the net," Barroso said.

He said he would push for the EU to have automatic exchange of information on all forms of income, including capital gains and dividends, by January 2015. Luxembourg announced on Monday its support for the mandate given the EC last week to negotiate with Switzerland, Liechtenstein, Monaco, Andorra and San Marino to share more tax information. Luxembourg is exempt from automatic exchange of tax information with the EU until these five non-EU tax havens agree to this measure.

Luxembourg also announced that it had agreed to automatic sharing with the US of information on bank accounts of US citizens and US residents in Luxembourg, starting in 2015.

On Tuesday, during a visit to Britain, the premier of the British Virgin Islands, Orlando Smith, said his government was reviewing international recommendations on ownership of British Virgin Islands companies to improve transparency. He urged other nations to share with his government information on illegal activity related to British Virgin Islands companies.

In a letter to British crown dependency territories including the British Virgin Islands on Monday, British Prime Minister David Cameron told the territories to get their "houses in order". He urged them to join the Multilateral Convention on Mutual Assistance in Tax Matters, which promotes sharing of tax information to combat tax evasion.